BREAK EVEN ANALYSIS HOW TO
BREAK EVEN ANALYSIS FULL

вЂњBut remember there are only a few components that can be adjusted-indirect costs, and gross margin percentage, through either volume of sales in units, unit selling price or cost per unit.вЂќ Perform a sensitivity analysis ItвЂ™s important to make adjustments, if needed,вЂќ says Fontaine. The same exercise could also be done using a range of gross margin percentages.вЂќ YouвЂ™ll then see a range of break-even points. вЂњTry calculating break-even using examples of $200,000, $250,000 and $350,000 in total indirect costs. When calculating your initial break-even point, youвЂ™ll need to establish a range of scenarios.вЂќ вЂњFor example, if total indirect costs are now trending more towards $350,000 instead of $250,000, your break-even point will now be higher, at $1.4 million.

Unfortunately, the reality is that after a month or two, or a quarter or two, you may have to re-visit that break-even point,вЂќ explains Fontaine. In a perfect world, you would meet all components of your budget. вЂњLetвЂ™s say that with estimated total indirect costs of $250,000 and a gross margin percentage of 25%, you calculate that youвЂ™ll need to achieve $1 million in revenue to break even. It can be easy to convince yourself to increase indirect costs to drive business growth, but if you do so in advance of the additional business, you will need to clearly understand the impact that these additional costs will have on the new volume.вЂќ The break-even rangeДЇontaine says that since every business experiences fluctuations in revenue, the break-even point should be thought of as a range, rather than a specific number.

BREAK EVEN ANALYSIS FULL

вЂњSometimes, the most difficult part for entrepreneurs is to realize the full impact of indirect costs on overall profitability.

BREAK EVEN ANALYSIS HOW TO

When to use a break-even analysisДЄ break-even analysis is essential for understanding how your business is doing and how to press on, according to Fontaine. A break-even analysis reveals how the break-even point changes for adjustments such as the unitвЂ™s selling price. The break-even point, on the other hand, establishes a threshold for success and helps set clear sales targets. вЂњSo, the formula is the same: indirect costs divided by your gross margin percentage.вЂќ The difference between break-even point and break-even analysisДЄ break-even analysis looks at where your business is headed and what course of action might be taken to reduce your break-even point and increase profit. A consulting business would be a good example of that,вЂќ Fontaine explains. The only difference would be in the type of volume it sells, for example, number of hours instead of number of units or products. вЂњThe service industry also has indirect costs and gross margin values. Growth & Transition Capital financing solutionsД¬alculating the break-even point for a service businessДespite their trade not being in units, companies that provide a service can still calculate their break-even point. Kauffman Fellows Program Partial Scholarship Venture Capital Catalyst Initiative (VCCI) Industrial, Clean and Energy Technology (ICE) Venture Fund

Break even analysis