The break-even point and the break-even point are essential data for all businesses and professionals. It makes it possible to define the minimum turnover to be achieved in order to be profitable. The breakeven point, on the other hand, designates the moment at which profitability will be reached. Here is everything you need to know about this information and especially how to do the calculations.
The break-even point is therefore the turnover to be reached for your business to break even. Once the break-even point is reached, the company does not incur a loss. It does not make a profit either, because the result is nil. Indeed, it is necessary to exceed this break-even point. When starting a business, it is important to calculate the break-even point. Thus, you will know from what amount of turnover your company will be able to cover the expenses and therefore be profitable. The break-even point is constantly changing, moreover, it is calculated each year but also in the event of a major change within a company.
The formula for calculating the break-even point is:
Fixed Charges + Variable Charges =Turnover achieved
As a reminder, fixed charges are charges that remain the same month after month. These charges do not vary, regardless of the company's activity. Among them are:rent, insurance, subscriptions and any fees from external service providers.
Variable loads are loads that vary. Most often, they are proportional to the activity of the company. They include the cost of manufacturing or cost of products, subcontracting costs, packaging or the purchase of goods.
The formula given above is not the only one. Variable loads can be taken into account. Here is the formula:
Revenue – Variable expenses =Margin on variable cost
As we have already specified, the break-even point is an essential data when starting a business. Moreover, this approach is undertaken during the Business Plan. But how do you do the calculation when you don't have all the necessary information?
Taking into account financial forecasts, it is possible to calculate the break-even point. To do this, you must take into account the average unit selling price and the average unit cost price. Here are the formulas:
(Unit selling price – Unit cost cost) / Selling price =Variable cost margin rate
Then:
Annual fixed costs / margin rate on variable cost =Break-even point
The break-even point and the break-even point are two essential and linked data. While the break-even point indicates the minimum level of activity that a company must achieve in order for the business to be profitable. The break-even point is expressed in turnover. The breakeven point defines when the company reaches its break-even point. It therefore indicates when it becomes profitable and it is expressed in number of days.
Break-even =(Break-even/Sales) * 365 days
Calculating the break-even point and the break-even point is essential. These data are excellent indicators. Indeed, if the break-even point is not reached, the company records losses. If the threshold is exceeded, then the company records profits.
Both the break-even point and the break-even point allow professionals to set sales targets but also to set prices. This will make it easier to direct communication and marketing campaigns. If you're looking for investors, these metrics are great benchmarks.
The calculation of the break-even point and the break-even point must be done when the company is created and then every year. Indeed, these indicators evolve with the activity of the company. They can be scaled up or down!
