Every business reaches a point where income matches expenses. This is known as the breakeven point, the level of sales required to cover all costs without generating a profit or loss. Once you surpass this threshold, every additional sale contributes directly to profit.
Knowing your breakeven point helps you think strategically about pricing, sales targets, and cost control. At Long + Cowan, we remind Wellington businesses that this figure is not fixed. It changes as expenses rise, markets shift, and growth strategies evolve. Treat your breakeven point as a living measure that moves with your business environment.
Why Monitoring Breakeven Matters
Your breakeven point is more than an accounting figure; it is a management tool. Tracking it regularly helps you understand how sales performance aligns with costs and pricing strategies. It also provides a clear target for your team.
Sharing this information with staff builds motivation and transparency. When everyone understands what it takes to move the business from cost recovery into profit, teamwork and accountability improve.
Key Actions to Consider
• Can you reduce operating costs to lower your breakeven threshold?
• Should you adjust pricing to achieve profitability sooner?
• Would increasing sales volume be a better solution?
Analysing these options keeps your financial planning dynamic and proactive rather than reactive.
Reducing Costs to Improve Profitability
Lowering costs directly reduces the sales required to break even. Review both fixed and variable expenses to identify where efficiencies can be made.
Fixed costs, such as rent, insurance, or salaries, remain constant regardless of sales. Variable costs, like materials or shipping, change with production volume. Analysing these categories helps you determine where you have flexibility.
Even modest savings in overheads can significantly lower the breakeven point, allowing profits to appear faster. For example, streamlining suppliers, negotiating better rates, or automating repetitive tasks can all make a measurable difference.
Pricing and Market Tolerance
If costs cannot be reduced further, pricing becomes the next area of focus. Increasing prices raises profit margins and reduces the number of sales required to break even. However, price adjustments must be approached strategically.
Consider how your customers and competitors might respond. If your market is highly price-sensitive, raising rates too quickly could reduce sales. On the other hand, small, well-justified increases often have minimal impact on demand while improving profitability.
Before adjusting pricing, review your value proposition. Highlighting service quality, reliability, and expertise can help justify higher rates and maintain customer trust.
Lifting Sales Volume
When cost-cutting or price increases are not viable, focus on driving higher sales. Expanding market reach, enhancing marketing campaigns, or improving customer retention can all contribute to higher volume.
Encouraging your team to understand the breakeven target creates a clear purpose. Regular updates on progress can boost morale and maintain focus. Align sales incentives with profitability goals rather than revenue alone.
Using Breakeven Analysis as a Decision Tool
Regular breakeven analysis provides clarity when planning business growth or new investments. It helps you answer critical questions such as:
• How much additional sales revenue is needed to justify a new hire?
• What level of production increase makes equipment upgrades worthwhile?
• How would a price discount affect profit margins?
By modelling different scenarios, you can make confident, data-driven decisions that minimise risk.
When to Seek Expert Advice
If analysing your breakeven point feels overwhelming, professional guidance can simplify the process. Our chartered accountants at Long + Cowan use detailed financial analysis to identify the right mix of cost control, pricing, and sales targets. We can help you set realistic goals that improve both short-term cash flow and long-term profitability.
Understanding your breakeven point gives you control over your business future. For practical support or to discuss your current performance, contact us for more info by filling in an enquiry form or e-mailing or calling us during office hours.
