As a business owner, calculating your break-even point is an important number for you to know.
So what is the break-even point?
Break-even is when your profit is zero, you’re not making money and you’re not losing money. Knowing your break-even point can be helpful in deciding prices, setting sales budgets and preparing your business plan.
So how do you calculate ‘break-even’?
Wondering how you calculate your break-even point? Well quite simply, it’s the average monthly expenses that you have in the business divided by the average gross margin of the product or service that you sell.
This will give you the revenue or sales target that you need to hit each month just to cover those expenses… to break-even.
Which is where the problem lies … if you’re just covering expenses, well then you’re not actually getting ahead in your business.
What if you looked at break-even this way?
What if instead you calculated a profit break-even, which would mean adding the profit that you wanted to make as a business owner into the equation. This makes sense considering all the risk and hard work that you’re putting into your business.
So how do you calculate ‘profit break-even’?
So you take your expenses and add to that the profit number you’d like to target, then divide that by the average margin of the product or services that you sell to give you a new sales or revenue target to aim for.
And by going for that number, you’re more likely to do more than just break-even in your business.
Start by knowing and focusing more on your profit break-even instead of your break-even alone.