Understanding
Break-Even
The break-even point is the minimum amount you must charge in order to
cover all expenses incurred for the production and promotion of your goods
and/or services without losing or making money. In other words, any
income which is above the break-even point is considered to be profit and
anything below it is a loss.
To find your break-even point, you must first total all of your
operating costs, including materials and labor, equipment lease or
purchase payments, advertising, utilities, office supplies and any
incidentals such as gasoline, maintenance, postage, etc.
Generally, this is computed for a particular period of time, such as
six months or a year. However, if your business is still in the early
stages of operation, you can use the estimated figures on your projected
expenses statement cost for materials and labor.
Knowing your break-even point is one of the greatest favors you can do
for yourself as a business owner. It tells you how much you must charge
for your products or services and serves as an invaluable tool in setting
prices which will help you realize a profit.
Keep in mind, however that the break-even points is a variable figure.
Since it depends on production and overhead costs, plan to reevaluate
periodically to make your prices reflect any changes.
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