Break-even analysis. Break-even analysis predicts when… … Your business is going to start making profit.

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Presentation transcript:

Break-even analysis

Break-even analysis predicts when… … Your business is going to start making profit.

It can also be used to: Evaluate a start-up idea Assess the impact of new costs Project profitability for a new product

It can also be used to: …By separating them into fixed costs (overheads) and variable costs You need to know your: TOTAL FIXED COSTS VARIABLE COST PER UNIT Start with your costs…

The break-even equation: Total fixed costs Sales volume required to break even = Contribution margin

The same as before, just express the contribution margin as a % converted into a decimal figure 62.5% = Dollar break-even equation:

Hours worked break-even equation: Total fixed costs Hourly charge out rate = Hours to break even

Advertising spend break-even equation: Advertising spend Contribution margin = Sales volume required to break even

Weighted average price… …Is used to find a break-even point by companies selling multiple products or services

Weighted break-even equation: Total fixed costs ( weighted average price – weighted average variable costs) = Sales volume required to break even

Business.govt.nz provides free access to a wide range of resources, including tools and interactive content. It acts as a gateway to government and private sector business information, news and services. Next steps: Break even calculator Assess your financial health Financial forecasts Finance and money Five ways to improve your profit Find out more with Business.govt.nz:

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