How do I determine where my breakeven point is?
First of all, what is it?
Our breakeven point is the point of sales where we are no longer losing money for being in business but we have not yet generated enough sales to have a positive net income.
The way to determine where this point takes place needs to have our fixed expenses known. For example, how much is our rent for the business facility each month? How much is the electrical and other utilities involved. These are just some of the few examples of what a fixed expense is. They are items we have to pay regardless of whether we are operating or not.
A variable expense is the cost it requires to produce one item. An example could be of a dressmaker needing material to sew a dress. The material and thread would be a variable expense. The items it takes to produce the dress.
So, let’s put some numbers to our example. I sell each dress for $100 but the fabric and thread cost me $30. My profit for each dress is $70. Now let us take a look at the fixed expenses. Our rent for the month is $1000 and the electricity to keep the building warm for the month is $120. There are more but we will keep it simple for demonstration purposes. Our total fixed costs are $1120.per month. The profit per dress is $70. So we would have to make 16 dresses to cover the expenses of just being in business. (16x70 = 1120.). Any additional dresses we make for the month are profit. (provided they all sell).
Our ideal solution is the reverse of this.