Permanent link for Predicting Your Business' Break-even Point on June 9, 2023

The break-even point is an important financial target that every founder should understand. It is the point at which your total revenue equals your total expenses, and you start making a profit. In other words, it's the point where you break even. If you sell less than your break-even point, you'll lose money, while if you sell more, you should be turning a profit.

To calculate the break-even point, you need to know two things: your fixed costs and your variable costs. Fixed costs are expenses that don't change, such as rent or salaries, while variable costs are expenses that vary with your sales volume, such as production costs or commissions.

Once you have identified your fixed and variable costs, you can use the following formula to calculate your break-even point:

Break-even point = fixed costs / (price - variable cost per unit)

For example, if your fixed costs are $50,000, and your variable cost per unit is $10, and you sell your product for $30 per unit, your break-even point would be:

Break-even point = $50,000 / ($30 - $10) = 2,500 units

This means that you need to sell 2,500 units of your product to cover your fixed and variable costs and break even.

Knowing your break-even point is critical because it can help you make informed decisions about pricing, production volume, and marketing expenses. By understanding how many units you need to sell to break even, you can set sales targets and adjust your strategy to achieve profitability.

FindLaw has a great breakdown of how to do a break-even analysis before you start your business.

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Posted by Thomas Hopper on Permanent link for Predicting Your Business' Break-even Point on June 9, 2023.