Three Tips for Performing a Breakeven Analysis
As a new business owner, one of the things you will have to do is a break-even analysis. A break-even analysis will predict when your business will earn enough revenue to cover the expenses. For an accurate analysis, you will need to predict what your costs and profits will be. Here are some tips to help you get started:
Define The Costs
Fixed Costs
The costs your company makes monthly are called fixed costs. These can include rent, cleaning services, payroll, and insurance premiums. If you have recently started your business, you should not include initial startup costs in your analysis. For example, a down payment on the property would not be calculated.
Variable Costs
The variable costs your company makes monthly may change based on outside factors. The main variable costs have to do with the income you make from sales. Other costs may include advertisement, utilities, and sales tax.
Set The Price
There are two methods that business owners may use to set prices. One of the pricing methods you can choose is cost-based pricing. Cost-based pricing requires finding out how much it costs to make one unit. You would then set the price higher than the cost to ensure a profit. Another method is called price-based costing. Price-based costing involves starting a unit price that the customer will prefer. You will need to lower your costs to meet the price. This method allows you to lower your prices and make a profit while competing with other businesses.
Review Your Results
Once you have calculated how many units you need to sell, look over the results. Determine if the number you need to sell in a year is an achievable goal. If you are unable to meet your break-even point, examine your fixed and variable costs. Make the necessary cuts to the costs before going back to the break-even analysis. Your break-even analysis can be challenging, but it is an important calculation for your business. To learn more about how Filejet can help you, contact us today.