Financial doubts: how to calculate the break-even point?

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If you don't know how to calculate your business's break-even point, you could have serious financial problems. After all, the break-even point allows you to know what level of sales you need to cover expenses. A basic objective for any business, whether new or already established. If you don't know how to calculate the break-even point, you will have a hard time knowing if you will be able to meet your business's expenses and therefore you may end up closing your business or having to reduce expenses in order to reduce the break-even point level and save your company.

When calculating the break-even point, you can do it based on revenue or units of product sold , depending on the type of company you are. To calculate the break-even point, you can use a simple Excel spreadsheet or similar. What you will have to decide is the time period over which you want to calculate the break-even point. At the very least, do it annually, but I recommend doing it monthly as well.

To do this you must take into account the following steps:

1. Make an estimate of the canada whatsapp shopping data income and expenses of the activity for the chosen time period (normally a full year) without VAT. Because calculating the break-even point is an economic calculation of income and expenses, while VAT is a financial concept as it is a higher payment.


2. Separate the fixed costs from the variable costs associated with the purchase or manufacture of the product, or the provision of the service. The profit margin has been calculated by dividing the unit cost by the unit price.


3. Proceed to calculate the break-even point as the quotient of the fixed costs by the profit margin. To calculate the break-even point in units, you simply have to divide the total income by the unit price. It is also advisable to add a column to divide the annual results by the months of the year that your business is open (normally 12, not taking into account holidays and vacations).

Once you have the above figures, you can make decisions to reduce the break-even point, such as increasing sales through marketing campaigns, increasing the price (be careful of the effect of the increase on the purchase volume of your current customers), reducing fixed costs, or the cost of the product or service.