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Compare cost, overheads and business factors again return to calculate your break even point when selling multiple items/products.
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If you are looking to make and investment or startup your own business, it is important to know your break even point first. Start ups are exciting, but demand a lot of planning, attention and consistent effort. At the same time, it is essential too think realistically when starting up a new venture. Break even point analysis is an important part of planning any start up. It is that point of time when your business has generated enough revenue to cover your initial cost. It also covers any fixed and variable costs incurred on a monthly basis. Once you have reached the break even point, any additional income generated after that point could be considered as profit.
The break even calculator tells you exactly how many units would you need to sell, to reach the break even point. To calculate the break-even point you will have to enter the following values in the calculator:
On the basis of values entered by you, the calculator will provide you with the number of units you would require to reach a break-even point.
In addition to that, the calculator will also show you the following information:
Ideally, Break-Even calculations should be done before you start a business, launch a new product or start to offer a new service. Using the calculator could be really useful, especially for startups:
The break even analysis helps you calculate out your break-even point. Calculating the point at which your business starts to become profitable is just the beginning, there is much more to do once you have a target number in your hand; you can start working on your sales strategy, marketing and other financial planning elements of your business strategy.
After the number crunching you may have to figure out a way to reach the break even point as soon as possible. This may require cutting costs or increase in selling prices. Let's take a detailed look at how you can use the calculations to leverage a lower break even point and boost business profitability:
Once you know the number of break even units, it will give you a target which you and your staff can aim towards. A break even point could be an ongoing target, say 20 units per week. This provides motivation to work toward your goals and forms a Key Performance Indicator (KPI) that your sales and operations teams can use as a tangible benchmark for success.
When you know exactly how many units you need to sell to reach the break even point, it becomes easier to plan ahead of the time. This also helps you in setting long term goals. So, your break even plan will form your datum point at which you become profitable. You can then add tiers, say 5%, 10%, 15%, 20% and so on. Achieving 5% may well be the disired growth rate to allow the business to succeed, achieving 10% or 20% would facilitate excellent business growth. Knowing this allows you to set targets for your sales teams and provide incentives for them (financial, promotion, shares etc.). The key overall factor is the visibility that the figures provide. Quantifying the success rates allows those with drive and determination to push to achieve the highest levels which is great for personal achievement, financial reward and overall business success.
With the break even result you can start to analyze the micro components that create the overall cost. Quantifying those components correctly allows you to identify areas where you may be able to cut costs. Examples including hiring freshers (typically more flexible in work hours and less costly from and hourly rate ratio), sourcing alternate merchants who can provide you with the same quality material on lower costs, investing in IT (software and hardware) to leverage a reduced transformation cost model, going paperless, reducing manual handling, streamlining processes and so forth.
You might want to add new products to sell to reach the break even point. This can be particularly useful if you are considering break even from an overall business perspective. Increasing product lines may be a cheap solution (say you have a shop or warehouse, adding more product lines will likely add little to your holistic operational costs). When taking this approach, it is important to consider the product break even point (or line item break even point) as well as the overall break even point for the business or sub business units.
The calculations will show you if your prices are compatible with your break even units goals. You might decide to raise the prices, but the comparable items in the market must be considered before doing that. For example, raising prices doesn't necessarily mean more profit as sales are typically demand led. That means that the more people want things, the higher the demand. The higher the demand, the less product availability. The less availability, the easier it is to increase the relative value of a product. This is why big companies like apple release their new iPhone in a controlled manner. Their strategy being to create demand and sustain that demand for as long as possible to keep the prices high. Cheaper phones manufactures will happily flood the market as they are looking at a smaller profit margin with the aim of high unit sales.
The Break-Even point is where your total revenue will become exactly equal to your cost. At this point the profit will be 0 and any income earned beyond that point would start adding into your profits. Understanding your breakeven point from a holistic and micro business level will provide you and your staff visibility that supports effective targets to support individual, team and business success via clear, quantified goals.
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