How Well Do You Know Your Break-Even Point?
- Mark Baylor
- Apr 4, 2018
- 1 min read
How well do you know your breakeven point?
I have dealt with hundreds of entrepreneurs and small business owners over the years, many of whom have been in my classroom. The successful business owners can tell me their breakeven point in a couple of seconds.
Rick, my favorite lunch truck owner, is a good example. He said… “$400 per day” in one second. I asked a woman who had just started an antique shop. She didn’t understand the concept, nor the question. She went out of business in a matter of months!
So, this is an important concept for every business owner to know, and then burn into his or her brain.
Most businesses have a combination of fixed costs and variable costs. The ratios of these two types of expenses certainly vary according to what type of business you’re in. A “solopreneur” working from a home office has a rather small fixed expense. A business that pays rent, hires full or part time employees has a fixed expense, or overhead, must cover those fixed expenses before any profit is earned.
Do we calculate this on a yearly, monthly, weekly, or daily basis? I would argue all the above. It’s more accurate to make a yearly calculation, and then factor it down to the daily basis. Why? You want to stay focused on the task at hand every day. You need to be focused on the profit objective to sustain your business and grow your business.
The following is a graphic example of a small business:
