Break-even Pricing is a pricing method that sets a price that exactly covers all costs (fixed and variable) for the production and distribution of a product, resulting in a zero profit. This is the minimum threshold price below which a company would generate a loss.
Target Profit Pricing is an extension of the first method, where a price is set that not only covers costs, but also will yield a predetermined, desired target profit at a certain level of sales. Both methods are cost-oriented and require accurate calculation of fixed and variable costs, as well as analysis of the critical point (Break-even Point) – the volume of sales required to achieve zero or target profit.
