Work Harder Smarter – Calculating Break-Even Point
Knowing how much you need to make to survive is a must in business. Unfortunately, when businesses grow it is not always the case that more sales results in more money.
Being confident in your pricing, knowing your costs and your break-even point is the first step to working smarter in your business and successfully growing your sales for the long term.
What is a break-even point?
Your business’ break-even point is the number of sales you need to cover costs. A good break-even point calculation should also include the amount you want to take from the business.
Why do you need to calculate it?
Knowing what your business needs to make in order to survive is vital to long term success. A break-even point can help you with crucial decision making such as how to price your services or products. It can even assist you in identifying which services or products are going to make you more money. A break-even point should be calculated when you are adding new or additional services or products to your business, or making crucial staffing decisions.
Revisiting a break-even point calculation on an annual basis (minimum) will assist you as your business grows.
The 5 Steps To Calculating Your Break-Even Point & How To Calculate It:
1. Identify your gross margin percentage
2. Add up your overheads
These are the costs in your business you need to keep the business going, eg rent of office premises, telephone, internet etc
3. Add up your repayments + owners drawings
Repayments on loans & owners drawings (the amount you want to take from the business)
4. Calculate your costs to cover
Add 2 + 3 together
5. Calculate your break-even point
Now that you understand your business’ break-even point you can use this information to make better business decisions which will ultimately allow you to work smarter not harder.
Vanessa Bamford, Business Coach
Helping Small Businesses Succeed