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Why is this important & how do I determine it?
Knowing the break-even point of your business will tell you the amount of sales required to become profitable. This article will help you determine your break-even point in 3 easy steps.
- Determine the Margin per Unit sold.
- Determine your Total Annual Expenses.
- Divide Total Annual Expenses by Margin per Unit sold.
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This is how it is done.
MARGIN PER UNIT SOLD
Margin per Unit Sold is: Unit Selling Price less all your Costs required getting the unit to your customer.
If you are in the business of selling your time, Margin per Unit is your hourly billing rate.
If your product is manufactured by you, or bought and sold by you, use a table similar to the one below to determine the Margin per Each Unit sold. The table below is just a guide. Only YOU know what your true product costs are. Make sure you include all of them. Be realistic.
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ANNUAL EXPENSES
List ALL of your expenses on an Excel spread sheet similar to the one below — (DO NOT INCLUDE EXPENSES USED TO ARRIVE AT MARGIN PER UNIT SOLD). Insert the amount you will spend each month in the appropriate column. Don’t forget to include your own wages. Other examples are: insurance – all types, car or truck, bank charges, interest, office supplies, computer, legal, audit, postage, courier, loan payments, etc. This is not a complete list. Only YOU know what all your expenses are. To arrive at a meaningful break-even point, you must include all applicable expenses.
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