Calculate Break Even Point 🎯
The Break Even point is a coveted destination for many companies
It’s where your revenue finally matches your costs, and profitability is on the horizon
For most companies, this can be the goal right from day 1
For startups, this can come much further down the line as they start to prepare for an exit
➡️ How do you calculate break even?
This is most commonly expressed using your Revenue, and comparing it to your Fixed Costs and Variable Costs
➡️ What are Fixed costs?
These are costs that don’t scale with each sale.
If you are operating a restaurant, a fixed cost may be the rent that you pay each month
➡️ What are Variable costs?
These are the opposite of fixed costs…
IE, they change in proportion to the level of business activity
Back to our example of operating a restaurant, a variable cost may be the cost of materials in the food you are selling
➡️ How do you calculate Break Even?
The formula is rather simple
Break Even Point = Fixed Cost / (Sales price - variable cost)
➡️ Can we go over an example?
🥪 Let’s say you sell sandwiches
🏬 Your rent is $10,000 / month
💰 You charge $10 / sandwich
💸 and your variable costs if $6 / sandwich
The formula would be $10,000 / ($10-$6) = 2,500
That means when you sell 2,500 sandwiches…
You make $10,000 in profit…which is exactly what you need to break even on your fixed costs
That’s my take on break even - what would you add?