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How to calculate your Break Even Point.
The Break Even Point is a crucial measurement for business and is often over looked.
Your Break Even Point is essentially:
1. The point of zero profit and loss, i.e., where the revenue equals the costs; or
2. The amount of money you are required to earn (your sales) that will cover all of your out goings.
Your Break Even Point can be calculated as follows:
Fixed Expenses / ((Revenue – Cost Of Goods Sold) / Revenue)
Revenue less Cost of Goods Sold will also calculate your Contribution Margin. The total Contribution Margin will show how much a business has to contribute to its fixed costs.
The lower you can keep your Fixed Costs / Overheads the lower your Break Even Point will be.
Typical examples of Fixed Costs include:
- Office expenses
- Light and Power
- Administrative salaries
- Depreciation and Amortisation
If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
Phone +61 3 9428 1062
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