Calculating your Breakeven Point

Calculating your Breakeven Point
Panagiotis Koutoudis
by Panagiotis Koutoudis

Being an entrepreneur, there are certain mathematical calculations that needs to be made to predict the future on a business’s success or failure. For instance, if you are starting a new business and have made a business plan to convince an investor, the biggest question that the investor would have is how many products/hours of services do you have to sell in order to cover your cost and start making profit?

A Tool That Does The Job For You!

The core objective of every business is to start making profit. Predictably, no business starts making profit the moment it launches in the market. A product when launched, takes its time to grow into the market, gain customer confidence, start showing its benefits against its competitors and finally start making profit from its sales. Till the point a product starts making profit, a business has to bear all the expenses and may even go on loss to convince their target audience. However, the point at which a product starts selling at a rate at which it not only covers its production cost, but start making a profit is known as the breakeven point.

There are several factors or steps one needs to figure out to calculate their breaking point. Some of the key determining factors are:

  • Comparing The Production Cost With This Selling Price - you need to clearly calculate the amount that you spend in producing an item and the price at which you are selling that particular item in the market. Production cost includes the labor cost as well.
  • Calculating any gains from the selling price above the production cost - if you production cost is $40 and you sold for $50, the excess $10 is your gain and contribution to the business. This is the amount that you can associate to your overhead cost from each sale.
  • Overhead cost - this is calculating all the other expenses regarding your business that needs to be covered before you start making a profit. Apart from the production cost, other expenses are taxes, indirect labor, insurances, subscription, rent, advertisement, supplies etc. This calculation is for you to know how much money your business needs to run, since you need to cover these additional expenses to start making a profit.

Once all of the above factors have been included, you can arrive at your breakeven point. According to marketing terms, a breakeven point of product sales is when it reaches its ‘maturity’ stage in the market.

“Note down your revenues and expenses. Is the key for the breakeven calculation.”

The breakeven point of every business is a mathematical computation to help a business identify a point at which it starts bringing in profit. Since, this calculation cannot be done by any individual; the companies hire professionals to do this calculation. However, there is a cheaper way to know the same calculation and it is by using the breakeven analysis tool offered by igostartup. The tool is the most affordable way to know a breakeven point of a business. It helps a business to know the quantity they need to produce to get more sales and the price at which they need to sell to reach the breakeven point. The tool just takes 5 minutes of your time, but can give you accurate results on how to reach your breakeven point.