Break-Even Analysis: How to Calculate and Examples
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Why Conduct a Break-Even Analysis?
How to Calculate Break-Even Points
Fixed costs: These are the company costs that stay the same over a defined period of time. They are costs that have to be paid even when your company isn’t producing anything, like rent payments for building space, salaries, insurance payments, utilities on a budget, fixed loan payments, and so forth. Variable costs: These are costs that can vary based on business activity. One example might be sales commissions. If a team sells more products, then its commission amounts would increase. If it sells fewer, then this amount would decrease. You may need to estimate what these will be to arrive at a number to use in this equation. Product sales price per unit: This is the cost that a business would charge a customer to buy one of its products. Contribution margin: This is the unit’s sales price minus its variable costs.
Example of Break-Even Analysis Calculation
Leveraging Break-Even Calculation Results
Raising prices Finding ways to cut costs A combination of cost-cutting and price adjusting
Pricing Strategies
Cost-Cutting Strategies
Cutting back on vehicle expenses Strategically using freelancers in the business Price-comparing supplies
The Takeaway
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