![]() ![]() ![]() "The biggest unknown to the equation is the amount of revenue! When your revenue equals your costs, you’ve reached break even point, it is as simple as that!" - Thierry Veil, co-founder of Bagelstein Don't forget that the more you sell, the higher your costs will be! Regarding revenue, your estimated turnover might be different than what you expected, and taxes might influence the actual figures. When calculating the break-even point several things must be taken into account, as some of the numbers you will put in your equation will be estimations! You will have to make several scenarios and apply margins to what you calculate.Ĭoncerning your costs, some unexpected events might occur like an increase in the price of raw materials, or the cost of new appliances/machinery! What to consider when calculating the break-even point? ![]() To break-even you will need to sell at least €1333.33 euros worth of items. To calculate do as such : FIXED COSTS ÷ CONTRIBUTION MARGIN Following the same example where your fixed costs are €1000 per month, and you sell 1€ items with a variable cost of €0.25. It identifies the amount of revenue you have to bring in to reach the break-even point. Calculate the break-even point in currency In order to reach the break-even point this month, you will have to sell over 1333 items. If your fixed costs are €1000 per month, and you sell €1 items with a variable cost of €0.25 you calculate as such : BREAK-EVEN POINT (units) = FIXED COSTS ÷ (SALES PRICE PER UNIT– VARIABLE COST PER UNIT) It identifies the number of products you have to sell in order to break-even. Calculate the break-even point in units The two ways to calculate the break-even point: PRICE OF PRODUCTS X NUMBER OF PRODUCTS SOLD = TOTAL REVENUES The total revenues is the price of your products or services multiplied by the quantity sold. FIXED COSTS + VARIABLE COSTS = TOTAL COST And the variable costs like raw material, taxes, commissions, operational expenses. The total costs of a company are the sum of the fixed costs such as rent, wages, insurance, loans, investments. We will first keep it simple, and then get more specific! You simply need the total costs to match the total revenues to get your break-even point. How do you calculate the break-even point?ĭon't forget to try our free break-even point calculator! "A mistake you shouldn’t make is checking it daily, because it can get very stressful if you don’t reach it and is also hard to analyse this way."- Thierry Veil, co-founder of Bagelstein If your business is only starting, break-even analysis will allow you to anticipate when you will start earning money from your work! Now, let's see how to calculate it! This rule applies to all types of business! If your company is already successful, you can use break-even point to improve efficiency. So in order to be profitable, you'll want to reach the break even point as soon as possible, in any given period. And there's a lot, every entrepreneur is ware of this! Employees’ wages, raw materials, rent, purchases of equipment, bills, etc… Your costs will be the amount of money you spend to run your business. If for instance you run a pizzeria, your revenues will be the amount of money you generate from selling your pizzas. Analyze at what point new goods/services will become profitable.Know the impact of pricing adjustments to existing products.Know how many goods/services need to be sold in a given period.Specifically, break-even analysis allows business owners to: Break-even analysis enables business owners to identify their margin of safety ad is a critical tool for effective planning and decision making. It’s important for business owners to analyse their break-even point for several reasons. "Below this point you have to break your piggy bank to cope with the financial loss, once you are above it you make money and you can fly to the Bahamas so it is pretty wide!" - Thierry Veil, co-founder of Bagelstein As a business owner, your goal is to obviously be above this point, in order to make a profit! If you are below the break-even point, your business is not profitable, and is losing money.
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