Question

Break-Even Analysis

Media outlets often have websites that provide in-depth coverage of news and events. Portions of these websites are restricted to members who pay a monthly subscription to gain access to exclusive news and commentary.

These websites typically offer a free trial period to introduce viewers to the website. Assume that during a recent fiscal year, one outlet spent $4,467,100 on a promotional campaign for its website that offered two free months of service for new subscribers. In addition, assume the following information:

Number of months an average new customer stays with the service (including the two free months)	21 months
Revenue per month per customer subscription	$29
Variable cost per month per customer subscription	$10

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

Answer 1

Breakeven Analysis
Breakeven	Fixed Cost/Contribution per unit
Breakeven	$ 4467100/$ 361
Breakeven	12374.24
	or approximately
	12375 Accounts

Contribution by one Customer
Subscription fee	$    29.00
Variable cost	$    10.00
Contribution per Month                                                     (A)	$    19.00
Number of months an average new customer stays with the service	21
Lees: Number of free subscription months	2
Paid Months                                                                            (B)	19
Total Contribution per Customer (A*B)	$ 361.00