A break-even analysis enables you to determine how many products you must sell and at what price in order to make a profit.
Your break-even point is when your business is producing enough revenue each month to cover all your fixed and variable costs.
Why is break-even important when exporting?
Conducting a break-even analysis lets you see what your minimum sales requirement is in order to avoid making a loss. This information can help inform your pricing strategy and help you understand how many products you will need to sell in any new market you enter.
By knowing where your break-even point is, you are able to establish:
- how many units you need to sell before you start to make a profit
- how much your sales can decline before you start to incur losses
- how reducing price or volume of sales will impact your profits
How to calculate break-even point
Break-even point is calculated using the following equation:
Break-even point = fixed cost / (sales price – variable cost)
When completing our break-even template you will need to input the following information:
- The profit you will be aiming for - make sure you consider what variable costs are involved in order to get your product to your chosen market.
- Your overheads - your overheads are your ongoing expenses when operating your business. These may include rent, mortgage or electricity payments.
- Your average unit price - this is the price you expect your customers to pay for your product.
- Labour costs - employee’s salary.
- Material costs - tools, raw materials etc.
Break-even analysis template
Download our free Break-even analysis template.