This week flew by. On Tuesday in class we talked about break even. Doctor Spotts drew us a very detailed chart in order to help us visualize the idea of break even. Break even itself is the fixed cost of a company divided by the difference between the selling price of a product and its variable cost. The difference between the selling price and the variable price is also known as the contribution margin. A contribution margin is also the profit a company makes. According to the graph from class, when the total cost is equal to a product's total revenue, that is the point of break even. Anything below that would result in a loss. It is a loss because it costs more to make the product than it earns in revenue. Anything above break even is a profit because the total revenue exceeds the total cost. A product also has to deal with fixed costs which are costs a company pays at a fixed interval. An example of this would be a company paying a monthly lease on a production facility. We also learned about MSRP. MSRP is the manufacturer's suggested retail price which is the price the manufacturer sets as a recommend price at which to sell their product. A company doesn't have to sell the product at this price the producer of the product just gives a recommendation. After talking about profits we watched another shark tank episode. We missed a day of shark tank so I was very happy to be able to see one. This episode was about a company called Southern Culture Artisan Foods which was an organic breakfast company that specialized in pancake and waffle mixes. We were asked to pay attention to the pricing in this episode. We found out she was selling her mix for 7.99 and it cost anywhere between 99 cents and $1.50 to make. The 7.99 would be her MSRP because that is how much she recommends the mix be sold for. We also learned that after one year she had over 100,00 dollars in sales and 62,000 dollars in gross profit. The 100,000 dollars in sales would be her revenue and the 62,000 dollars would be her profit. We then concluded that the variable cost would be about 38,000 dollars. We figured that out because profit is just revenue minus cost. We new the profit and the revenue and just solved algebraically to find the variable cost. From there we talked about market objectives. One objective is profit maximization which is driven by a return on your investment. You are looking to sell at high prices to achieve a high margin quickly. There is also the sales objective. This is when you look to sell quantity at a lower price to gain some market share and sales revenue. Then there is the status quo objective which is when you sell a product at a similar price to your competitors. We concluded the class by getting homework that involved researching the product shortstacks further.
On Thursday we met with the engineers. This class was different. Instead of focusing on our product directly, we talked a lot about the customer we are trying to market to. We learned a lot about how to approach our market research. We watched a video of people in a laundromat and filled out a sheet that helped us work on our observational skills. This helps us because an important part of market research is the observational study. We need to be able to see how people react in a natural environment to a problem that our product would potentially solve. We also watched how not to conduct an interview. I'm not saying I know how to conduct an interview but I can honestly say I would not be nearly as bad as the woman we saw conduct an interview. The interview is an important process because that is how we know how a potential consumer feels about the problem we are trying to solve. If they see it as a big problem then our product may fare better than a product for a problem people see as a minor issue. We then brainstormed as a group to come up with questions we would ask people in an interview. We focused on making sure our questions were not yes or no questions but questions that evoke detail and explanation from someone. For homework we have to put our market research skills to the test and actually go out in the field and talk to people to find out about our market. I can't wait to see what people think of the problem we are trying to solve!
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