A large pizza sells for $12.

Materials for a large pizza cost $3.00.

Labor is considered a “fixed cost” – along with rent, utilities, insurance, etc.

Owner’s Pizza Shops wants to increase revenues. he plans to offer a $4 discount coupon for a $12 pizza. That’s a net $8.00.

He also plans to spend roughly $1,000 a month on EDDM coupon mailings – for immediate areas around his 3 pizza shops.

Those coupons will have an expiration date of two weeks after they are dropped at their carrier routes.

Postcard mailing cost is $0.191/pieces per 1000

Coupon printing cost is $.05/ pieces per 1000

Break-Even Point (BEP) = Total Additional Promotion Cost / (Net Selling Price - Cost of Additional Materials)

Questions:

1. Which EDDM carrier routes are you choosing, with how many coupons drops – once a month…? (Note: Coupon printing cost is $.05) Remember, you only have a $1,000 budget to spend – on your initial test EDDM mailing and printing.

2. If your net revenue per coupon redeemed for a pizza is $8.00 (note: printing costs are part of your promotion cost, not pizza cost),

how many coupons need to be delivered?

how many pizzas need to be sold to “Break Even” – if your coupon redemption rate is 5%?”