Breakeven Frontier

Many mature businesses are stuck on what I call the Breakeven Frontier and their managers don’t know it.

What is the Breakeven Frontier?

It’s also called saturation. Their products are available to nearly all the folks who naturally value them and the cost to increase sales is roughly equal to (or more) than the value of those extra sales.

So, the company might spend $10 million on advertising and see sales rise, but only enough to add $10 million or less to the bottom line.

Marketing isn’t the only breakeven investment for a mature business. Most investments they make to increase sales or reduce costs are also breakeven, at best, which is why I call it a frontier.

They might try to cut costs by putting fewer chips in the bag. Their supply chain will brag about the cost savings. But, customers notice and end up buying fewer bags of chips. A move that might save $10 million a year on potatoes can easily cost that much in sales.

What can businesses do when they’re stuck on the breakeven frontier?

A couple of simple things. They should be investing some of the earnings from their mature product in innovation to create new products that can find their own growth curves.

On the cost side, they should be looking at making cost reductions that do not actually lower the quality of the product. Taking chips out of the bag is not a good idea. Getting a better deal on the oil you use to make the chips, might work better.

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