You are a $5 million airline ticket sales agency. Your sales force has been hard at work and has jus

You are a $5 million airline cruise reviews ticket sales agency. Your sales force has been hard at work and has just landed a new business account. The account will bring in $400,000 of new business. In return for this share of business, the customer has told you that he is willing to pay you only 7% of sales in fees. Will you be able to make a profit on this new chunk of business or will you incur a considerable loss? The return on revenue (ROR) for your agency is only 12.2%. How can you afford to accept only 7% in fees? If you say "no" to the prospective client, he will undoubtedly go elsewhere. Can you really cruise reviews afford the account? In my judgment, it is crucial that you perform an "incremental business analysis" when taking a new account. You can then analyze whether cruise reviews you can afford to handle the new business. Your break-even point is the point at which the Total Variable Expenses intersects with Revenue line. Since your variable costs represent only 15% of your total revenue, you theoretically could charge an 8.5% fee and still break even. So this means you should do your best to negotiate 8.5% in fees or turn down the new business if the client is only going to pay a 7% fee as in my opening cruise reviews example. Air sales $5,000,000 Total Service Fees 527,390 Total Fixed Expenses 381,700 Total Variable Expenses 81,500 Total Expenses 463,270 Net Income before Taxes 64,120 Return on Revenue 12.2% Agent Productivity 625,000 In many businesses the cost of labor is a variable cost. However, I maintain that in the travel agency business, labor costs are fixed. You need to have agents staffing the telephones and computers whether or not the phones are ringing off the hook. Of course, you can argue that if you take in $2 million cruise reviews in additional business, then you will need to bring in additional staff, thus increasing your fixed costs. That is called a step effect. You will have a step increase in the fixed cost line. But for the purposes of my example, I am assuming that after taking on the $400,000 account, you will not need to add any fixed expenses, i.e., you won't need to hire new personnel, you won't need to purchase an additional computer, cruise reviews you will not need to increase your space, etc. However, it is good to know how much room you have to maneuver. You can see if you make an incremental business analysis you can determine several things: The number of tickets you need to sell in order to be in the black. The profitability of new business. Your ratio of fixed to variable costs and the impact of reducing them. The impact of raising cruise reviews your fee revenues through overrides. The point at which you have to increase fixed costs in order to accommodate new business. cruise reviews I have seen too many agencies make the mistake of reducing their fee revenue without receiving any intelligent benefit in return. If you review this information carefully you will have the tools to at least make a sound decision. It allows you to measure the profitability cruise reviews of additional business.