Break even in business is more than just a number. If you’re like most business owners, you’re always looking for ways to cut costs and increase profits. But before you can do either of those things, you need to know your break-even point. What is break even in business ? It’s the point at which your company starts making a profit. By understanding how much revenue your business needs to generate in order to cover costs, you can make more informed decisions about pricing, hiring, and other strategic decisions.
Break-even is an important metric to track because it tells you whether or not your business is sustainable. So how do you calculate it? Read on to find out!
Why break even is important
More about So what is break even and why do we care? Break-even is the point at which your business no longer loses money on each sale, but it also doesn’t make any money. In other words, you’re not profitable yet, but you’re also not in the red. It might not sound like a big deal but reaching break-even is an important milestone for any business.
That’s because once you hit break even, you can start making a profit! And that brings us to our next question… How do we calculate break even? To figure out your company’s break even point, simply divide your fixed costs by your unit price minus your variable costs. Piece of cake (or pie)!
Now that we know how to calculate our break-even point, let’s look at how we can use this information. Say you want to raise prices or reduce expenses in order to reach profitability faster – now you can see how those changes will impact your bottom line.
You can also use break even analysis to decide whether or not a new product or service is worth pursuing. If the projected sales don’t cover all of the associated costs (fixed and variable), it’s not a wise investment. One more reason to understand break even in business.
But if the numbers look good, go for it! Finally, breaking even provides some peace of mind for small businesses owners who are working hard to keep their heads above water.
Knowing that they’re getting closer and closer to profitability every day gives them something to shoot for and keeps them motivated during tough times. Have you reached break-even yet?
Check out our FREE online Break Even calculator.
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