Do you know your breakeven point?

Lately I get a lot of feedback from business owners that they are experiencing financial difficulties. They say they work hard, have a great staff but hardly make any money.

The question I ask you regularly, do you know your numbers? And in particular, do you know your breakeven point?

It usually becomes silent after that. The answer I usually get is: “My account knows the numbers”, “I don’t know” or worse, “What is the breakeven point”?

As a business owner, you should always take a look at your numbers. If it is not weekly, at least monthly. The more you know your numbers and understand them, the more instant feedback you will get from your business to make it run better, to make more money, and to free up your time. The key is to make it a must each week to review your finances, sit down with a consultant or your team to get feedback on how well you are doing.

One of the essential numbers and proportions that you should always know is your break-even point. Therefore, many business owners do not even know what breakeven is.

I will explain it to you in simple language. The breakeven point is a very important number for anyone who is in a business, invests in projects or owns a business. This number shows you where income and expenses equalize, so you don’t make a profit or loss. This is the MINIMUM amount of sales that you must make from the moment your business begins to generate income. Companies use this to calculate for large projects the worst case if they invest in the project. In their eyes, the worst case scenario is reaching the level below the breakeven point, where they lose.

How to calculate your breakeven point.

If your product sells for $ 15 each and has variable costs of $ 11 per unit, each unit you sell has a contribution margin of $ 4.

If your fixed costs are $ 20,000, you must sell 5,000 units to break even. After this, he makes a profit of $ 4 for every product he sells. The formula is:

Fixed costs / (Sales price – Variable costs) = breakeven point

Ways to improve your breakeven point

There are several ways to improve your breakeven point. You can do this as follows:

Reduce your fixed expenses

Reduce your variable costs

Increase your sales by adding a portion of your fixed costs to your quote to ensure you make an overall profit for your business than just the project.