Finding your breakeven point

Finding your breakeven point

Knowing your business’s break-even point is fundamental in determining whether or not your business venture is successful, failing or ultimately worth pursuing.

A business’s break-even point is the point at which the business’s total revenue equals the total costs and expenses of running the business.

Knowing your business’s break-even point is crucial when determining product prices, setting budgets and preparing business plans. Basically, it is the number that determines how much a business can spend and how much it needs to make. Even if a business turns over a lot of money, it could still be making quite a loss. Using the break-even point can help determine this.

Understanding where your break-even point is allows owners to work out the following:

  • how profitable the current product line is
  • how far sales can decline before losses start to incur
  • how much needs to be sold before a profit is made
  • how any price reductions will impact on profits
  • how much of an increase in price or sales is needed to make up for fixed cost increases

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