Breakeven Analysis

Breakeven Analysis: How to Know When You Can
Expect a Profit

Breakeven analysis is used to determine when your
business will be able to cover all its expenses and begin to
make a profit. It is important to identify your startup
costs, which will help you determine your sales revenue
needed to pay ongoing business expenses.

For instance, if you have $5,000 of product sales, this will
not cover $5,000 in monthly overhead expenses. The
cost of selling $5,000 in retail goods could easily be
$3,000 at the wholesale price, so the $5,000 in sales
revenue only provides $2,000 in gross profit. The
breakeven point is reached when revenue equals all
business costs.

To calculate your breakeven point, you will need to
identify your fixed and variable costs. Fixed costs are
expenses that do not vary with sales volume, such as rent
and administrative salaries. These expenses must be paid
regardless of sales, and are often referred to as overhead
costs. Variable costs fluctuate directly with sales volume,
such as purchasing inventory, shipping, and
manufacturing a product. To determine your breakeven
point, use the equation below:


Breakeven point = fixed costs/ (unit selling price –
variable costs)

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https://www.sba.gov/content/breakeven-analysis