A. Determine Your Break Even Point

In order to be successful, your business has to make more money than it spends.  The money you make after you subtract all you costs – both fixed and variable – is called your profit.  Although it’s normal for a business to lose money at first, you have to know you can eventually make a profit and survive the “valley of death,” the dry period before your business starts making money.

The moment a business stops losing money and starts making a profit is called the break even point.  When you “break even,” you recoup all your costs through sales, with the money coming in equaling the money going out.  Your break-even point tells you the number of units you must sell each month to cover all your expenses.

To calculate your break-even point, divide your monthly fixed costs by your gross profit.

                        Break-Even Point  =  Fixed Costs  ÷  Gross Profit

If your first calculation seem impossible, don’t despair.  By adjusting your numbers through cutting costs or increasing the price, realistic solutions can be found.

Seeing Double
What happens if you have more than one typical sale with vastly different prices?  Then how do you figure out your break-even point?

Homework

• Look over your business needs.  Update the Startup Needs and Costs sections of your Blueprint based on what you learned.
• Spend some time researching your costs.  How much money will you need up front?  What are you fixed costs?  What are your variable costs? List these costs using the Cost Worksheet provided at the end of the section.
• Try to find a realistic break-even point using the Break-Even Worksheet.  If you have trouble, we’ll look at it again next week.
• Don’t forget to talk with customers!  The more customers you talk with, the closer you are to winning, and of course, helping your business along the way.  Use the Customer Conversation template to prepare and capture your thoughts.  Remember, be bold and confident about your idea, and listen carefully to what others say.

Complete the Break Even Point assignment attached before moving on. You will need to email the completed assignments to us.

Click here for the PDF of Assignment 11.2 – Determine Your Break-even Point

Click here for the PDF of Assignment 11.3 – Time to Break-even