How well do you know your breakeven point?
A breakeven point tells you what dollar value in sales is needed to cover costs. It’s a tool for thinking about sales, costs and pricing.
The Concept Of A Breakeven Point
You may have heard of the concept of breaking even and wondered what it was and whether it was relevant. Your breakeven point tells you how many units you need to sell or what dollar value in sales you need to achieve just to cover your costs. Once you know that, you know the point you need to pass to turn a profit.
Pretty easy, right?
But a breakeven point isn’t set in stone. As we, your certified chartered accountant can tell you, it will shift as your business grows, costs fluctuate and as you continue to surf a constantly changing business environment.
Monitoring Breakeven
A breakeven point therefore becomes something you keep in play over time as a tool for you to think about your sales, costs and pricing in a different way.
For instance, say you know your breakeven point and you take it at face value. Tell your team. It’s a powerful motivator for your sales people to know exactly what the numbers are to put the business in profit.
Tell your team!
Reduce costs?
Lift prices?
Lift sales?
Say you don’t accept your breakeven point at face value. What can you do? Can you reduce your costs to lower your breakeven point so you can start earning profit sooner? That might lead you into analysis of your fixed and variable costs to judge whether you have room to move.
Not Too Sure
Or does your breakeven point uncover an issue with your pricing that you need to deal with? Lifting your pricing might mean your numbers are into profit sooner but you might have to think about whether your market will tolerate that. Does that line of thought indicate that you simply have to lift your sales volume? And then you’re looking at marketing strategies, market reach and coaching your team on what the sales goals really are.
If you’re not sure you really have a handle on analysing your breakeven point, we’re happy to talk through options which could increase your profit.
We Are Happy To Assist
If the topic leaves you cold, that’s OK. Just give us a call before it’s all too late – before discovering that you are not as profitable as you thought.
If you want to know more about the method used for your business and how it works, that’s great. Give us a call, and we will be happy to run our eye over your current situation.
We enjoy accounting. Indeed, that’s why we are here to help.
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