Dynamic profitability threshold of a sports equipment selling enterprise

The increase in household wealth, observed at the beginning of the 21st century in Poland, results in dynamic development of sport infrastructure. Playing fields, bicycle paths, swimming pools and recreation centers emerge in publicly accessible places. This generates great demand for sports equipment, which is also fostered by the sport successes achieved by Polish athletes in many disciplines. The subject of this study entails the profitability threshold of an enterprise selling sports equipment on the Internet. Profitability threshold is an enterprise characteristic that does not belong to the categories analyzed via econometric tools. The literature, therefore, lacks studies addressing empirical determination of profitability threshold in an enterprise. This necessitates a model comparison of the company's total costs against the sales revenues. The purpose of this article is to describe the variability mechanism of the total costs in an enterprise, using a stochastic econometric model. Sales revenues have been included in the model equation. This will allow to determine the level of the company's fixed costs as well as calculate the increase in the variable costs the per revenue unit. Positive verification of the empirical model allowed indication of the sales revenues level at which the total costs are covered. This requires comparison of an empirical equation of the cost with a hypothetical equation that assumes equal costs and revenues. By solving such a system of equations, the company's profitability threshold is obtained. Exceedance of the profitability threshold results in the appearance of profit in an enterprise. A procedure for determining the dynamic profitability threshold of an enterprise has been presented as well. This procedure is necessary when a trend occurs in the empirical equation of the total costs. Information on the profitability threshold becomes an important decision-making tool in an enterprise. It indicates the point at which profit on sales can be expected in a period under observation. Additionally, it suggests the use of marketing tools that allow the company to exceed the profitability threshold.