Despite the fact that the business is organized with the goal of making a profit, quite often the unpredictability of the market or insufficient management efficiency results in losses for the company. This situation can be called catastrophic, especially for beginning businessmen, because losses mean the investor loses his own money, and this is always painful. Unwillingness to part with their own funds also explains the attention that company managers usually give to losses. You can even say that preventing the company from falling into the “negative zone” is the main priority of its product policy, and the break-even point calculation is the main tool of this policy.
Despite the great importance that the break-even point has in making managerial decisions, the calculation of the break-even point is quite simple. All you have to do is split your costs into fixed and variable. Constantly traditionally include all expenses that are not associated with an increase or decrease in your sales. What could it be? In fact, the range of fixed costs is quite wide. This includes the rent for using the office, the obsolescence of equipment and salaries for managers, and the costs associated with paying a loan. We can say that these costs "hang" on the company, and if it does not sell, then it will certainly carry out the calculation of losses.
Variable costs include everything that is directly related to sales. This, of course, is the cost of raw materials and materials, as well as the payment of commissions to sellers and the costs associated with the transportation of finished products. By all rules of logic, such costs per unit of product must be less than its price. Thus, the more you sell, the greater the costs, but also the greater the profit.
After you have divided the costs into groups, you can directly calculate the break-even point. To do this, divide all your fixed costs by the income from the sale of one unit of the product minus the variable costs of its production and sale. For example, a product costs 100 rubles, and raw materials, salaries for agents, etc. amount to 60 rubles. Then the sale of each unit of the product will pay 40 rubles of fixed costs. Suppose they are 4,000 rubles. In this case, you need to produce and sell 100 units of products so that your profit is zero. This is the breakeven point.
Break-even calculation can also be done in monetary terms. We multiply the result we obtained earlier by the price and find out that we must receive 10,000 rubles of income in order to reach the breakeven point.
In the future, you need to focus on the obtained indicators for planning sales volumes. Of course, it is advisable that your plans include a figure that significantly exceeds the breakeven point. It is not a planned value, it is the lowest level, below which the enterprise has no right to fall. If you want to calculate the planned value of sales, then add the expected profit to the fixed costs as well. The result will be your expected sales.
Break-even calculation, among other things, allows you to determine the financial stability of the campaign. If fixed costs make up the bulk of the cost, then such a business is more risky, but at the same time it is also potentially more profitable when increasing sales. However, keep in mind that a business with a high share of fixed costs should keep sales at a level significantly greater than the breakeven point, otherwise unpleasant consequences cannot be avoided.