Run contribution margin sprint, break-even ladder, capacity check, and reverse solve sequence
Sarah has spotted an opportunity: local retailers are scrambling to install point-of-sale systems before the holiday rush. She's considering adding a POS Setup Service as a second TechStart offering — but only if the numbers make sense.
The cost structure is different from web design, and so is the capacity. Your job: run the same four-step CVP sequence on this new scenario and determine which pricing strategy is feasible.
Variable cost / install: $320
hardware accessories, software license, travel, setup materials
Monthly fixed costs: $4,800
Alex's allocated hours, specialist tools, service vehicle lease
Capacity: 15 installations / month
each install takes ~10.5 hrs; Alex has 160 hrs / month
For each pricing tier, compute the contribution margin in dollars and as a percentage of price. The variable cost is $320 per installation for all three options.
CM ($) = Price − $320
CM (%) = CM ÷ Price × 100 [1 decimal]
| Option | Price / Install | Variable Cost | Your CM ($) | Your CM (%) |
|---|---|---|---|---|
| Basic Setup | $560 | $320 | $ | % |
| Standard Setup | $720 | $320 | $ | % |
| Premium Setup | $950 | $320 | $ | % |
Using $4,800/month in fixed costs, compute how many installations each option needs to break even. Then rank them easiest to hardest.
Break-Even = ⌈$4,800 ÷ CM per Installation⌉ — round UP always
| Option | Fixed Costs | CM ($) — from Step 1 | Your Break-Even |
|---|---|---|---|
| Basic Setup | $4,800 | — | installs |
| Standard Setup | $4,800 | — | installs |
| Premium Setup | $4,800 | — | installs |
Based on break-even alone, which option would you eliminate — and why?
Keep that in mind. Step 3 applies the 15-installation capacity ceiling.
Alex can handle 15 POS installations per month at most. Select each option to see whether its break-even is achievable within that ceiling.
Standard Setup requires 12 installations to break even.
Feasible — 3 installations above break-even before hitting capacity. Profit at full capacity: $1,200.
This is the same test you ran for web design — but the numbers are different. Same framework, new context.
Sarah wants the POS service to generate at least $4,000/month. Work backward: which option can hit that target within the 15-installation ceiling?
Worked example — Basic Setup ($560, CM = $240) with a $4,000 target:
Required installs = ⌈(FC + Target) ÷ CM⌉
= ⌈($4,800 + $4,000) ÷ $240⌉
= ⌈$8,800 ÷ $240⌉
= ⌈36.7⌉ = 37 installs — not feasible
Now use the inputs below to test Standard and Premium Setup options, or to find the required price at full 15-installation capacity.
Solve A — required volume at chosen price
Selected option (from Step 3):
Standard Setup — CM = $400
Required installs: 22
Exceeds capacity by 7. Try Premium Setup or lower the target.
Solve B — required price at fixed volume
Using target profit from Solve A: $4,000
Required price: $907
= $320 + ($8,800 ÷ 15)
- Compare the POS scenario to web design: which service has the higher CM ratio at its top price? Why does that matter?
- Which pricing option would you recommend for the POS service — and what single number best justifies your choice?
- If Alex could add 5 more hours per month, how would that change the feasibility picture?
Coming Up: Independent Practice
In Phase 4 you'll build both the web design and POS scenarios into an Excel workbook, then write a pricing memo comparing which service line is the stronger investment for TechStart.