Do you know your company’s break-even point?

     The goal of a breakeven analysis is to find the point at which your revenues equal your costs. In a world of online tools and Excel spreadsheets, many small businesses take the breakeven calculation for granted. Too many entrepreneurs make the mistake of introducing their product or service to a market without fully researching the total costs involved in starting and sustaining a profitable business.    

     Whether a seasoned entrepreneur or a startup with a great idea, you need to ask yourself how the breakeven analysis can benefit your business. For starters, this simple calculation can help you set the price point for your product or service, examine the impact of fixed and variable costs, and assess how sales will need to grow in order to justify additional investments in your business. Market conditions are continually changing, and in turn, your prices and costs also need to evolve to remain competitive.

     Conducting a breakeven analysis will require a careful and diligent examination of costs and prices related to running your business. While the calculation itself is not hard, it can be difficult to identify and categorize costs into the key components of this essential equation. The three key components of the breakeven analysis are overhead costs, variable costs, and the selling price of your product or service – and if you are a startup company, you may want to include initial startup costs in the breakeven analysis. The breakeven point can be measured in terms of breakeven volume, which can be calculated by dividing your fixed costs by your product’s contribution margin. While this may seem like a simple calculation, it can become very complex when a business has a wide breadth of products with multiple revenue streams.

     Talk to me about helping your company fine-tune its profit model by routinely conducting this kind of breakeven analysis. Is it time to hire an additional employee and increase overhead costs? Should you sell your product at a higher price? How will finding a less expensive source of supplies affect your bottom line? If you want to refine your approach to price and costs management, lets set up a time to talk about how I can help your business.