Your business has certain fixed costs that it will incur regardless of your sales volume. These include items such as rent, insurance, interest, and utilities. Your business also has variable costs that fluctuate with sales (for example, the cost of raw materials used to make a product). If your gross profit after deducting variable costs isn’t high enough to cover your fixed costs, your business will lose money.
A break-even point calculation lets you determine the level of sales at which your gross profit equals your fixed costs. Your goal is to exceed this level so that you’ll make money. However, knowing your break-even number provides a baseline for gauging your results as the year progresses.
If you need help calculating the break-even point for your product or service, please call our office today.