To break even, you need to know exactly what it takes for your business to cover its costs. Start by identifying your fixed costs, such as rent, salaries and insurance - expenses that stay the same regardless of sales. Then, calculate your variable costs, like materials or shipping, which change depending on how much you sell. With these figures, you can determine how many units of your product or service you need to sell to cover all expenses.
The break-even formula is simple: Fixed Costs / (Price per Unit - Variable Cost per Unit). For example, if your fixed costs are 5,000, your product sells for 10, and the variable cost per unit is 4, you need to sell 834 units to break even. Knowing this number helps you set realistic sales goals and understand the impact of pricing and cost changes on your bottom line.
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