How to Calculate the Breakeven Point on a Truckstop Promotion

In honor of Thanksgiving and all of those Black Friday sales, today we are going to talk about promotions. Do you ever wonder if a promotion you run is profitable? Ever wonder if a promotional opportunity being offered by a vendor is going to drive sales and/or profitability? Do you wonder if you can you sell enough at the reduced price to make up for lost retail sales of profit margin dollars? I receive a lot of questions from NATSO members on this issue. This fall I was asked during a travel plaza visit by a perplexed operator, "How do I know if I am doing the right thing when discounting an item for a promotion"? To help shed some light on this quandary, I thought it would be helpful if I put together a worksheet on how to calculate the breakeven point. We've create a downloadable worksheet with formulas to calculate the breakeven point on a promotion.
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Welcome to the newest post in our blog series, Darren’s Great Ideas! for Independent Operators. 

How to Calculate the Breakeven Point on a Truckstop Promotion

In honor of Thanksgiving and all of those Black Friday sales, today we are going to talk about promotions.
 
Do you ever wonder if a promotion you run is profitable? Ever wonder if a promotional opportunity being offered by a vendor is going to drive sales and/or profitability? Do you wonder if you can you sell enough at the reduced price to make up for lost retail sales of profit margin dollars?
 
I receive a lot of questions from NATSO members on this issue. This fall I was asked during a travel plaza visit by a perplexed operator, "How do I know if I am doing the right thing when discounting an item for a promotion?"
 
To help shed some light on this quandary, I thought it would be helpful if walked you through an example and created a downloadable worksheet with formulas to calculate the breakeven point on a promotion. Download the Truckstop Promotion Breakeven Worksheet here.
 
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But first, let's take a look at an example of a bottled water promotion using sample numbers.

Please note: The prices and margins used in the examples that follow are purely hypothetical and are not meant to state or suggest the prices you should charge or the margins you should realize for any item of merchandise in your store. 
 
Sample Normal Margin Structure
Let's say you normally buy bottled water for $1.00 and sell it for $1.99. This is a 49.75% gross margin and $.99 profit per unit. If you sold 100 units per day, you would gross $99.
Retail $1.99  
Cost $1.00  
Gross Margin Percent 49.75% =(Retail - Cost)/Retail
Single Unit Margin Dollar Production $0.99 =Retail - Cost
Average/Normal Unit Sales* 100  
Typical Margin Dollars $99.00 =Single Unit Margin Dollar Production times by Average/Normal Unit Sales)
*Our example is for daily sales, but it could also be monthly or yearly.
 
Sample Promotional Margin Structure
Now, if a vendor offered to sell you bottled water for $.90 to retail at $1.50, you might wonder how many units you need to sell to breakeven.  
Retail $1.50  
Cost $0.90  
Gross Margin Percent 40.00% =(Retail - Cost)/Retail
Per Single Unit Margin Dollar Production $0.60 =Retail - Cost
 
Breakeven Analysis
Total Average/Normal Profit Dollars $99.00  
Proposed Per Unit Margin Dollars $0.60  
Breakeven Units 165 = Total Typical Margin Dollars divided by Proposed Per Unit Margin Dollars

So, for this example, you need to sell at least 165 units of bottled water at the lower retail price to break even. If you thought you could sell 200 units at the reduced price, it would be a success. More units, more sales and more profits. But remember, every promotion is different and a more sales is not always the measure of success. Sometimes the desired outcome is to bring more customers in the door to generate sales in other categories. 

If you need me to help walk you through with some examples, please give me a ring or shoot me an email and I would be happy to help you.   

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/// Read more Darren's Great Ideas for Independent Operators posts here.  

 

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Join the conversation! Do you calculate the breakeven point when you offer promotions? What advice would you give other operators facing this quandary?

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