So you're an entrepreneur who is ready to beard the lion. Congratulations. First step, business plan? No. The first step is research. And probably the most important piece of research necessary before one can commence writing the business plan is knowing the breakeven point of your business. More Info. What is a business "breakeven point"? It is the level of sales revenue that matches the business' total expenses (meaning both fixed and variable expenses). One more sale past the breakeven point and the business is in the black (i.e., it is profitable on a cash flow basis). Seems simple enough on its face but, when we write the concept out as a formula, one can see there is more to it. The tricky part of the calculation is variable costs--those that fluctuate with the level of sales. As a mathematical formula, breakeven is calculated like this:
Breakeven Point = Fixed Costs / Gross Profit Percentage
Thus, to calculate your business breakeven point, we must first (a) tally fixed costs and (b) calculate the gross profit percentage. As the latter is the more difficult of these two steps, let's start with it.
Step 1: Calculation of Gross Profit Percentage >>
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