Module 3, Topic 4
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Break-even Analysis

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A break-even analysis estimates when your business could break even and start to pay its ongoing costs. Breaking even means reaching a point in your business where the money you’re generating matches the cost of your outgoing expense. Carry out a break-even analysis and enter the resulting date in the space provided. To find a break-even date, you need to start by estimating the sales volume you need to reach to break even and then estimate how long it will take you to reach that milestone given your capacity limitations. Keep reading for more instructions on how to do this: 

Estimate your break-even sales volume:

  1. Separate all your costs into type – fixed or variable
  2. Add up your total fixed costs
  3. Tally up the average variable cost per product sold or service delivered (your variable cost per unit)
  4. Subtract your variable cost per unit from the unit sales price to find your profit margin
  5. Divide your total fixed cost by your profit margin to find your break-even sales volume

Estimate your business’s average production or service capacity per day (or week if that’s more relevant): 

  • Make sure you dig down into the details to account for the entire supply chain from production to point of sale. Once you have an accurate estimate, divide the break-even sales volume by your average production capacity to give you the number of days (or weeks) ahead until you reach your break-even date.

If you charge an hourly rate for a service, you can take a short cut to the break-even calculation by calculating your break-even point in hours. Divide your fixed costs by your hourly call-out rate to find the number of hours that need to be worked to reach break-even and apply the result to the average number of hours worked each day by the service technicians in your business.