Among the many charts and reports it can automatically generate from financial data is a break-even chart.
Enter your email to reset your password Or sign up using: Sign in if you're already registered. Getty A break-even analysis is a key part of any good business plan. It can also be helpful even before you decide to write a business plan, when you're trying to figure out if an idea is worth pursuing.
Long after your company is up and running, it can remain helpful as a way to figure out the best pricing structure for your products. It sounds complicated, but it's not. Basically, a break-even analysis lets you know how many units of stuff—say, how many ham sandwiches, iPhone apps, or hours of consulting services—you must sell in order to cover your costs.
You'll need several basic pieces of information: Fixed Costs Fixed costs are ones like rent and administrative payroll that don't change much from month to month, regardless of how many units you sell.
SCORE lists many common fixed costs.
Chautin suggests asking the utility company for the past year of bills for your location. Call an insurance broker for a real quote for your particular business. Check with trade associations or web sites such as www. Variable Costs Variable costs are ones like inventory, shipping and sales commissions that rise or fall with your sales volume.
As with fixed costs, talk to trade associations, vendors and even other business owners in your field to come up with the most accurate estimate. The ratios are not going to be that far off.
Pricing This is the trickiest of your three pieces of data, since you're able to choose exactly where to set your prices. Start by looking at your competition, and how they price their products. You can also do informal focus groups to see what people might be willing to pay for your wares or services.
Do you want to be at the midpoint, higher end, or lower end? I see people pricing earrings at three times what their competitors are charging. Why would anyone buy that? That's where a break-even analysis can come in handy.
Performing a Break-Even Analysis: The Formula Once you've got your cost data and a target price, plug them in to this formula: Any sales above that are pure profit.
Anything below means you're losing money. Suppose you're turning a jewelry-making hobby into a business. Use your break-even formula to compare different pricing strategies.
The break-even formula can help you compare different cost structures as well as prices. You can use a basic Excel spreadsheet to run different break-even scenarios, or download one of many break-even templates available online.A break-even analysis is a key part of any good business plan.
It can also be helpful even before you decide to write a business plan, when you're trying to figure out if an idea is worth pursuing. Breakeven analysis. More templates like this. Expense journal Excel.
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Address books. Agendas. A break-even analysis is a key part of any good business plan.
It can also be helpful even before you decide to write a business plan, when you're trying to figure out if an idea is worth pursuing. Business; Breakeven analysis; Breakeven analysis.
This accessible template helps you calculate how much you need to sell before you begin to make a profit. You can also see how fixed costs, price, volume, and other factors affect your net profit. Excel. A Break-Even Analysis Is A Reality Check for Your Business A break-even analysis helps you determine whether your overhead is realistic or needs to be reduced.
Maybe for Sam’s Beach Umbrella Store it is impossible to sell more than umbrellas in a month.
This calculation will clearly show you how many units of a product you must sell in order to break even. How to Write a Business Plan "Concept and Value Proposition" Section. Business Plan Essentials: Question Key Assumptions.