Register now or log in to join your professional community.
Several key factors contribute to a company's break-even point.
Market Demand
Essentially breakeven is determined by two basic factors -- anticipated revenue and projects costs of doing business. Revenue is largely affected by market demand. The more customers desire your products and services, the greater your sales volume and the sooner you can cover your business costs. The uniqueness of your business, size of the potential target audience and effectiveness of your promotional techniques all affect the volume of demand you experience over time.
Startup Costs
The relative costs of starting a business have major influence on your break-even point. A business that requires only $10,000 to start has a much better opportunity to reach breakeven sooner than one that costs $50,000 to start. If quarterly net profit were projected at $5,000, it would take about two quarters to reach breakeven in the first scenario, but about10 quarters, or more than two years to reach breakeven in the second scenario.
Variable and Fixed Costs
Variable and fixed costs are the ongoing costs involved in operating the business. Variable costs include costs directly associated with product or acquiring goods for sale. Fixed costs are things like utilities and building rental that you pay for regardless of production. High overhead can significantly delay breakeven. High variable costs mean you have to sell a high volume of goods or services to earn enough gross profit to cover fixed costs and then to pay start-up costs.
Pricing Strategies
Your company's pricing strategies contribute to break-even timelines as well. High-end providers often sell goods at significant markups on variable costs. This makes for a high gross profit. A high gross profit means you earn more from each sale to cover fixed and start-up costs. Low-cost providers often have slimmer gross profit margins. This means they have to sell many more products, often requiring more time, to ultimately reach breakeven.
Hello,
Break even point: Fixed costs + Variable costs per unit x Quantity = Price x Quantity
Quantity = Fixed costs / (Price - Variable costs per unit)
So if you want to have a profit you should do:
>increase the quantity of goods sold
>decrease Fixed costs
>increase the price
> reduce the Variable costs per unit
Thank you,
Valentin
Fixed Cost & Contribution margin per unit
The break-even point and a useful tool for the study of the relationship between the fixed cost and variable cost and yield and are considered a major tool In providing information for the management of short-term profits in order to clarify the planning profitability effects produced by Changes in the following factors: A change in the selling prices of the products. (B) changes in the cost elements of the unit costs, whether fixed or variable costs (C) changes in the volume of activity within the appropriate range. (D) changes in the starting lineup for the relative mix of commodity goods, which are handled by established
The factors affecting Break Even Point that factors which the equation contains
Break Even Point = Fixed Cost ÷ (Sales Price per Unit - Variable Cost per unit)
that mean the main factors are
1- Fixed Cost
2- Sales Price per unit
3- variable cost per unit
all this factors have to be under the below assumptions
1- Sales Price per unit is constant on the level of unit under relevant range
2- Variable Cost per unit is constant on the level of unit under relevant range
3- No Inventory That mean production Volume equal Sales Volume
4- One product In case of multiple product companies, the selling prices, costs and proportion of units (sales mix) sold will not change
5- Fixed costs remain constant within the relevant range. Fixed costs remain unchanged at any level of activity within the relevant range.
6- The behavior of total revenues and total costs will be linear over the relevant range.
Break even Point is one at which volume of sales or production enables an enterprise to cover related costs and expenses without profit and without loss : that volume of trade or degree of activity at which total income equals total expenditures.
