In order for your business to be profitable, it is important to know what your break-even point is. A break-even point is the point at which the company’s sales exactly cover its expenses. When your company hits its break-even point, the company sells enough of its products or services to cover its expenses without making a profit or taking a loss. Even if your business is generating a lot of revenue, it could still be operating at a loss if all of the expenses of running the business exceed the revenue.
Knowing the break-even point is also helpful in deciding prices, setting sales budgets, and preparing a business plan. In order to calculate your company’s break-even point, use the following formula:
Fixed Costs/Sales Price per Unit – Variable Costs = Break-even Point in Units
The break-even point formula is calculated by dividing the total fixed costs of production by the price per unit less the variable costs to produce the product. The break-even point calculation is a useful tool to analyze critical profit drivers of your business including sales volume, average production costs and average sales price.
While the break-even formula is a simple way to quickly calculate your break-even point, you should talk to a CPA when considering your business’s profitability for any major decisions. When you thoroughly understand your numbers, you can make smart decisions that will help your business prosper.
To learn more, contact a Nevada Corporate Headquarters representative at 1-800-508-1729.