When you are starting a new business, opening a new branch, or introducing a new product line, it is important to know how much you need to sell to break even.
Any time you don’t sell enough to break even, that's an early warning of major problems you will soon be facing. That early warning allows you to fix the problem while you still have time.
You will need three pieces of information to calculate a break-even point for each of your major products and services.
- Your revenue per unit sold.
- Your variable costs incurred for each sale. These are the costs that you only incur when you sell a unit. This includes items such as the cost of the item sold, freight, commissions, direct production labor, etc.
- Your fixed costs. These are expenses you pay whether you sell one unit or thousands. These can include rent, office expenses, tax preparations, insurance, etc.