What’s Your Breakeven Point?

What’s Your Breakeven Point?

What's your breakeven point?

Do you know your breakeven point? As a business owner, you’re in business to generate a profit. But before you make even a dollar of profit you need to know how much to sell your products/services for in order to keep the doors open – in other words, your breakeven point. Many business owners don’t understand fully the breakeven point and as a consequence, don’t stay in business long!

In simple terms, the breakeven formula is: Fixed Costs divided by Gross Profit Percentage

Learn more: Building a business budget

What are Fixed Costs?

Fixed costs are those costs that exist independently of sales – you have them regardless of the amount of sales you make. Generally fixed costs are constant in price and ongoing such as rent, loan repayments, insurance, telephone, etc.

What are Variable Costs?

Variable costs are costs that are influenced by sales, also known as Direct Costs or Cost of Sales. These include inventory, materials used in production, direct labour costs, etc.

What is Gross Profit Percentage?

Gross profit percentage is the sales less variable costs expressed as a percentage of sales.

Why is Breakeven Point Analysis Important?

Breakeven point analysis is a great tool for managing and controlling costs, as well as utilising it as a decision making tool to assist in setting prices or determining what volume of sales might be needed to break even. If you don’t know your breakeven point, it makes it more difficult to set prices for your products/services, or to determine the volume of sales required to be profitable.

Do you know your breakeven point?

 

Calculate your breakeven point here

 

 

Book a discovery call with Sarah

 


PS. Whenever you’re ready, here are 3 ways we can help you eradicate financial stress in your accounting firm or professional services business – faster …

  1. Sign up to our LinkedIn newsletter, published weekly. You can sign up here: Eradicating Financial Stress

  2. Get our book “Wow – I’m in Business! Your journey from overwhelmed to organised.” It’s full of insights, solutions and downloadable resources you can implement into your business immediately. Click here for your copy: Wow … I’m in Business! – Miss Efficiency

  3. Book a time with me privately and we’ll do a deep dive into your Xero file to help you optimise for cash flow, efficiency and growth. Click here to book: Book a time with Sarah

 

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