Breakeven analysis Breakeven analysis predicts when Your business

Break-even analysis

Break-even analysis predicts when… … Your business is going to start making profit.

It can also be used to: • • • Evaluate a start-up idea Assess the impact of new costs Project profitability for a new product

Start with your costs… …By separating them into fixed costs (overheads) and variable costs It can also be used to: You need to know your: • TOTAL FIXED COSTS • VARIABLE COST PER UNIT

The break-even equation: Total fixed costs Sales volume required to break even = Contribution margin

Dollar break-even equation: The same as before, just express the contribution margin as a % converted into a decimal figure 62. 5% = 0. 625

Hours worked break-even equation: Total fixed costs Hourly charge out rate = Hours to break even

Advertising spend break-even equation: Advertising spend Contribution margin = Sales volume required to break even

Weighted average price… …Is used to find a break-even point by companies selling multiple products or services

Weighted break-even equation: Total fixed costs (weighted average price – weighted average variable costs) = Sales volume required to break even

Find out more with Business. govt. nz: Business. govt. nz provides free access to a wide range of resources, including tools and interactive content. It acts as a gateway to government and private sector business information, news and services. Next steps: • Break even calculator • Assess your financial health • Financial forecasts • Finance and money • Five ways to improve your profit