Not understanding your business break-even and margins can lead to you working very hard for little profit; and let’s face it, you already work hard enough!
Your break-even point is when your total revenue, equals your total costs or expenses. There is not profit, nor loss.
So why is your break even important?
As mentioned, you could be very busy and turning over a lot of money and still make a loss. Knowing your break-even will help you to set prices, budget appropriately and prepare detailed and informed business plans.
When you have a clear understanding of your break-even point you can calculate the profitability of your products and offerings and determine sales outcomes, i.e., how a price or volume reduction in sales will impact your profits.
Conversely, you will also be armed with the information you need should any of your fixed costs increase.
Just as important is break-even in sales, this is a great tool for considering employing additional staff. By using the ‘’tailored multiplier’’ you can calculate what increase in sales you would need to cover the salary of your new employee. If you can’t increase the sales to at least break even, it’s not worth employing at this point in time.
There are a range of ways to calculate your break-even point, some using fairly straight forward formulas, and others more detailed.
Of course, you will have fixed costs regardless of your sales / income generation - including rent, wages, key services and utilities. Your profit margin is the percentage of sales dollars left after
If you’d like some assistance with your break-even calculations, and how you can use it to analyse critical elements of your business including sales volume, production costs and future planning, give us a call on 4926 8000.
At Hub, we’re here to help businesses of all size achieve their financial goals.
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