Break-Even Analysis Media outlets such as ESPN and Fox Sports often have web sit

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Break-Even Analysis

Media outlets such as ESPN and Fox Sports often have web sites that provide in-depth coverage of news and events. Portions of these web sites are restricted to members who pay a monthly subscription to gain access to exclusive news and commentary. These web sites typically offer a free trial period to introduce viewers to the web site. Assume that during a recent fiscal year, ESPN.com spent $2,619,360 on a promotional campaign for its web site, offering two free months of service for new subscribers. In addition, assume the following information:

Determine the number of new customer accounts needed to break even on the cost of the promotional campaign. In forming your answer, (1) treat the cost of the promotional campaign as a fixed cost, and (2) treat the revenue less variable cost per account for the subscription period as the unit contribution margin.

accounts (18190)" Was a wrong answer "

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Fixed costs divided by the unit contribution margin equals break-even sales.

  Number of months an average new customer stays with the service        (including the two free months)   20 months   Revenue per month per customer subscription $27   Variable cost per month per customer subscription $9

Explanation / Answer

Solution:

Number of new customer accounts needed to break even on the cost of the promotional campaign

Unit Contribution Margin = Unit revenue – Unit Variable Cost = $27 - $9 = $18

Fixed Cost = Cost of Promotional campaign = $2,619,360

Number of New Customer account needed to break even = Fixed Cost / Unit Contribution Margin

= $2,619,360 / 18

= 145,520

145,520 customer accounts are needed to break even on the cost of the promotional campaign

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