Break-even Analysis

Digital Safari Institute GreenBizz Project Key Questions How many items should I order?How many items should I order? What should we charge per item?What should we charge per item? How many items do we need to sell to make money?How many items do we need to sell to make money?

Digital Safari Institute GreenBizz Project When will Your Business Make Money? Break-even point: no loss, no gain You need to know: How many units/hours do you need to sell in order to cover your costs? How much revenue do you need to bring in to cover your costs?

Digital Safari Institute GreenBizz Project Break-even: Two Perspectives Break-even Volume = Number of Units (or Hours) to Achieve No Profit, No Loss Number of Units (or Hours) to Achieve No Profit, No Loss Break-even Sales = Level of Revenue Needed to Achieve No Profit, No Loss Level of Revenue Needed to Achieve No Profit, No Loss

Digital Safari Institute GreenBizz Project Fixed vs Variable Costs = Profit (how much?) Variable Cost Fixed Cost Gross Revenue % % % 100%

Digital Safari Institute GreenBizz Project Wholesale vs Retail Price = Wholesale Price Retail Markup Retail Price 40% 60% 100%

Break-even Volume

Digital Safari Institute GreenBizz Project Data Needed Total Fixed Costs Price per Unit Variable Cost per Unit Projected Unit Sales Projected Sales Revenue

Digital Safari Institute GreenBizz Project Calculating Break-even Volume Break-even Volume = Total Fixed Costs Sales Price per Unit – Variable Cost per Unit

Digital Safari Institute GreenBizz Project Data Needed Total Fixed Costs = $175,000 Sales Price per Unit = $10 Variable Cost per Unit = $4 Projected Unit Sales = 50,000 Projected Sales Revenue = $500,000

Digital Safari Institute GreenBizz Project Step #1 – Revenue Line Total Revenue Revenue Line 45 degree angle

Digital Safari Institute GreenBizz Project Step #1 – Revenue Line $1,000K $900K $800K $700K $600K $500K $400K $300K $200K $100K K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000 Unit Sales Volume Total Revenue Revenue Line

Digital Safari Institute GreenBizz Project Step #2 – Fixed Costs $1,000K $900K $800K $700K $600K $500K $400K $300K $200K $100K K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000 Unit Sales Volume Total Revenue Fixed Costs = $175,000 Revenue Line

Digital Safari Institute GreenBizz Project Step #3 – Variable Costs $1,000K $900K $800K $700K $600K $500K $400K $300K $200K $100K K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000 Unit Sales Volume Total Revenue Fixed Costs = $175,000 Variable Costs = $200,000 Total Costs = $375,000 Revenue Line

Digital Safari Institute GreenBizz Project Step #3 – Variable Cost Line $1,000K $900K $800K $700K $600K $500K $400K $300K $200K $100K K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000 Unit Sales Volume Total Revenue Fixed Costs = $175,000 Variable Costs = $200,000 Total Costs = $375,000 Revenue Line Total Expense Line

Digital Safari Institute GreenBizz Project Step #4 – Break-even Point $1,000K $900K $800K $700K $600K $500K $400K $300K $200K $100K K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000 Unit Sales Volume Total Revenue Fixed Costs = $175,000 Variable Costs = $200,000 Total Costs = $375,000 B.E. = 29,167 units Revenue Line Total Expense Line

Digital Safari Institute GreenBizz Project Step #4 – Break-even Point $1,000K $900K $800K $700K $600K $500K $400K $300K $200K $100K K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000 Unit Sales Volume Total Revenue Fixed Costs = $175,000 Variable Costs = $200,000 Total Costs = $375,000 B.E. = 29,167 units Profit = $125,000 Total Revenue = $500,000

Digital Safari Institute GreenBizz Project Your Break-even Estimate Each Executive: $8,000/month Each Tech/Sales:$7,000/month Each Admin:$5,000/month Headquarters: $1.50/sq. ft. Utilities/Operations:$1,000/month Your Product: $???/unit Parts/Materials:$??? Labor:$20/hr US or $0.50/hr China Shipping:$0.10/pound FOB China

Go For It!

Digital Safari Institute GreenBizz Project Scenario #1 – Lower Fixed Costs $1,000K $900K $800K $700K $600K $500K $400K $300K $200K $100K K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000 Unit Sales Volume Total Revenue Fixed Costs = $157,500 Variable Costs = $200,000 Total Costs = $357,500 B.E. = 26,250 units Profit = $142,500 Total Revenue = $500,000 Lower Fixed Costs by 10%

Digital Safari Institute GreenBizz Project Scenario #2 – Raise Unit Price $1,000K $900K $800K $700K $600K $500K $400K $300K $200K $100K K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000 Unit Sales Volume Total Revenue Fixed Costs = $175,000 Variable Costs = $200,000 Total Costs = $375,000 B.E. = 25,000 units Profit = $175,000 Total Revenue = $550,000 Raise Price by 10%

Digital Safari Institute GreenBizz Project Scenario #3 – Lower Variable Costs $1,000K $900K $800K $700K $600K $500K $400K $300K $200K $100K K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000 Unit Sales Volume Total Revenue Fixed Costs = $175,000 Variable Costs = $180,000 Total Costs = $355,000 B.E. = 27,344 units Profit = $145,000 Total Revenue = $500,000 Lower Variable Costs by 10%

Digital Safari Institute GreenBizz Project Scenario Comparison Original Costs & Pricing … BE = 29,167 Profit:$125,000 Lower Fixed Costs by 10% … BE = 26,250 Profit: $142,500 Raise Unit Price by 10% … BE = 25,000 Profit:$175,000 Lower Variable Unit Cost by 10% … BE = 27,344 Profit:$145,000