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volume anticipated for ad

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Rockstar_pizza

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Staff member
if you were paying 670.00 for an ad, what would you need to break even assuming I run a fairly tight ship 25 percent labor and 25 percent FC…average ticket is between 20 and 25.00

thanks
 
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Your fixed costs (rent, labor, etc) will need to be paid regardless if you run the ad or not. Therefore, they cannot be considered in calculating your break even. As well, unless you ad extra labor to cover the extra business generated from the ad, one can argue that you cannot consider labor cost as well. All that is left to be considered is the 25% food cost of each order directly related to the ad, which leaves you a gross profit of 75% and a break even of $893.33.

Keep in mind that you also need to consider the long term value of any new customer gained as a direct result from running the ad. I generally look to break even cash flow wise from the ad in the short term and plan on the long term value of the new customers that I retain from the ad to actually make me some money/profits.
 
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This is done to figure out how many items to make to break even or break even analysis. It is best to include both fixed cost and variable cost, in this case the variable cost is is tyour labor and food cost or what it takes to produce one pizza which is 50%. Fixed cost is what it cost every month to just open the doors. Utilities can vary but it is easier to treat them as a fixed cost. Break Even= fixed cost / (unit price - variable cost)

Fixed cost are say 5,000 includes rent, insurance, utilities, marketing etc
unit price for a pizza you say is about 22.00
Variable cost are 50% of unit price so that is 11.00
and your add is 670
So in the above- Fixed cost 5000 / (unit price 22 - variable cost 11)= 454 22 dollar pizzas to breakeven

Now plug in your ad cost 670 / (unit price 22 - variable cost 11)= 60 22 dollar pizzas to cover your ad which is 1320

Hell I could be wrong and I am open to critics but this is what I got.
 
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Fixed costs should not be used in the break even analysis regarding advertising investments, as they are cost that you incur regardless of whether or not you choose to advertise or not. In order to perform and accurate analysis one needs to only consider the costs directly associated with the investment. In the case of advertising, these are the cost of the ad and food costs associated with the orders that come in as a direct response from the ad. I do not include the labor cost in my analysis’, as I will incur the labor expense regardless if I run the ad or not.
 
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