Do you know what the ‘break even’ figure is for various operations being conducted in your business?

‘Break even’ sales are the level of sales necessary to cover all fixed (does not vary relative to production) and variable expenses (relate to production/sales) within your business.

Knowing your breakeven point is critical for business owners and managers. The break even point is the minimum level of sales you need to cover your businesses expenses. This is vital when you are trying to determine how to price your products or services. By knowing this number this allows you to make an informed decision when setting your prices to ensure you generate enough revenue to cover all of your costs and also for the business to make a profit.

Critical point about costs – One thing most people miss from our experience is to ensure that there is a market salary included in the costs to run your business. Therefore, make sure you include this. You are a valuable resource and your business wouldn’t function properly without you.

Further by knowing your breakeven point this helps you make an informed decision if you are looking to expand your business. Whether you are thinking about hiring more people (employees), investing in new equipment, expanding your product or services lines, getting into bigger premises etc. Understanding your breakeven point can help determine how much additional revenue you would need to generate to cover all of the new expenses whilst also still making a profit.

How do you Calculate the Break Even Point?

Remember the Break Even Point – gives the point of no profit or no loss.

To calculate your business’ ‘break even’, you need to know the gross profit percentage for the individual operations within the business for which you’re trying to determine the ‘break even’ amount.

For example:

Fixed cost – $235,000        Variable cost – $622,000

This will be a total cost, at that level of operations of $857,000.

If the gross profit being achieved by that operation or the overall business was 47%, the calculation would then be:

Fixed Cost + Variable Cost

Gross Profit Percentage

$235,000 + $622,000        = $857,000           $857,000              x              100         = $1,823,404                                                                                                   47%                                      1

Therefore, at this level of operations, the ‘break even’ is $1,823,404.

To prove the calculation:

Sales $1,823,404 x 47% =                       $857,000

If you would like our assistance in calculating ‘break even’ figures for your various operations or your overall business, please do not hesitate to contact us.