Break Even Analysis & BGC Matrix

Why Break-Even Analysis and BCG Matrix are good tools to use for product analysis ?

Both these analysis are directly linked with the end product an OEM or organization is producing and can give competitive advantage in certain ways to improve the net profit when compared with peers of same domain.

Break-Even Analysis: While Break-Even Analysis mainly works towards discontinuing existing product if it is not lucrative enough to generate overall revenue against total invest made towards development, it also forces PM's to define a threshold quantity of end product to be produced and sold to achieve at least what has been invested.

With B-E Analysis,one can calculate the exact number of product need to be produced covering fixed cost , price of product and variable cost. Ex- Company A is selling one product at USD 200, which is having USD 100000 fixed cost and USD 100 variable cost so how much quantity they need to produce and sell before discontinuing the same to achieve 100% ROI.

Quantity = (Fix Cost)/(Price-Variable cost) , which is herewith as =100000/(200-100) so they need to produce and sell at least 1000 units of end product to achieve 100% ROI.

BCG Matrix : BCG Matrix developed by Boston Consulting Group is excellent tool to identify the profit of organization through end product they are selling in terms of Market Growth and Market Share. Here products are classified in 4 Category as Star Products, Cash Cow, Dog and question mark product. Each of them can be defined as below:

Star Product: These are classified as product sold under higher market growth and high market share which is directly linked with investment of an OEM towards these products giving high profit to company.

Cash Cow: These products are at comfortable stage where they dominate lower growth market with their higher share of business and an organization can use the revenue generated by these products to fund star products.

Question Mark: These are mainly related to NPI or NPD activity of the organization where some new products are launched and same required a lot of investment in terms of market capturing and promotion.

Dog: These products future need to be decided by PM's as they are lower in terms of market share as well as growth and can cause a lot of an OEM in terms of achieving competitive advantage over its peers.

Both these analysis can be carried over to determine future of end product whether it need to be continued or need to be discontinued.