Scenario/Summary You are a marketing director for a Mexican Taco Restaurant loca

Question

Scenario/Summary You are a marketing director for a Mexican Taco Restaurant located in Lynchburg, VA. The average order size of your customers is $7.00 per order. That means that when all your food orders are divided by your total number of customers, the average order amount is $7.00. Your Role/Assignment Your variable cost per order is $3.00 in food costs and paper products. Of course, there are also fixed costs (whether you sell one or a hundred). These include your building lease ($2,000 per month, electricity $500 per month, and labor $3,100 per month). Using this formula, what is the break-even point? In other words, how many meals, at $7.00, would need to be sold before you start making a profit? Fixed costs/Average order - variable costs = Break-even point (Number of meals) The problem is that, even after being in business for a year, your restaurant is selling slightly less than 1,000 meals. There are several actions that can be taken to reach your break-even point, which is necessary if you are to remain in business. As the marketing director is responsible for the product, price, promotion, and placement, you control many of the tools to make necessary adjustments.

Explanation / Answer

Average Selling Price $7 Variable cost per unit $3 Fixed Cost (2000+500+3100) $5600 Break Even Point = Fixed Cost/(Selling price per unit-Variable cost per unit) No. of units required to be sold for Break Even = $5600/($7-$3) = 1400 Units For increasing the sales from units to atleast 1400 units, the restaurant will have to devise various strategies and perform various activities which may include : 1. Promotion-The restaurant can promot the brand by means of advertisements (local newspapers, magazines, hoardings, leaflets etc.), providing offers, schemes, discounts so as to reach to a maximum no. of people. 2. Market research - The restaurant will have to carry a market research in order to assess its product, pricing, quality, variety etc. in comparison to its customers so as to adopt the best practices and pricing methodologies 3. Correctly placing the product and opening the outlets in the most accesible locations based on the target customer level for e.g. it may open the outlet near the corporate hub if it targets most corporate customers and employees or near educational areas if it targets students as its customers. 4. Product base and quality control- Based on the market study for its industry and competitors, restaurants may have to add more variery or focus more on the quality of its products and highlights its specialities in the marketing campaign

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