Breakeven Analysis

1
Break Even Analysis For Service Businesses

• How To Find The Break Even Point

2
What Is Break Even

• Break Even is what you need to charge and how
  much you need to sell to break even in your
  business.
• You can discover this amount by
• total sales - variable costs - fixed costs net
  profit
• Net Profit x number of total services sold Break
  even point
• Its confusing, I know. At the end of this
  presentation I will be providing you a link that
  does all of the calculations for you. You just
  enter numbers.

3
Why Find Break-Even Point?

• The ultimate goal to running a business is to
  make money. In order to make money you need to
  know if you are selling enough or charging enough
  to make a profit. By finding the break even point
  you can decide the absolute minimum you need so
  that your business does not run in the red.

4
How To Find Starting Figures

• Finding the starting figures is not an exact
  science it is more of a guesstimate.
• Start out with an hourly rate you feel is
  reasonable
• Start out with a total number of hours you want
  to work
• If you have packages, come up with package prices
• Come up with how many packages you want to sell
  per month
• Multiply those figures together (Ie hourly rate x
  number of hours you want to work) that would be
  your total sales

5
Variable Costs

• Variable costs are individual service costs that
  change as the amount of services you sell
  changes. Some types of variable costs are
  commissions, telephone bills, automobile gas,
  supplies, etc.
• Break them up into categories and then add them
  all together to get a total of variable costs per
  service per month.

6
Gross Margin

• Gross Margin is the total of sales minus the
  total variable costs minus the price that each
  service is sold for.

7
Fixed Costs

• Fixed costs are individual service costs that
  stay the same no matter how many services are
  sold. Some types of fixed costs are
  administrative costs, taxes, rent, insurance, etc
  etc.
• Estimate each one and break them up into
  categories and then add them all together to get
  a total of fixed costs per service per month.

8
Net Profit or Loss

• After taking the total expected sales minus the
  total variable costs minus the total fixed costs
  you will get the net profit or loss

9
Break Even Point

• Unfortunately, you will not have the break even
  point on your first try but you will know if you
  need to charge or sell more or less depending on
  whether you got a profit or a loss.
• Once you get your net profit or loss, you will
  have to continue to change the price or the
  amount that you want to sell in order to get the
  break even point. It is easiest to do this by
  round numbers (ie tens, twenties, hundreds, etc.)
• Remember if you change the amount that you sell
  you HAVE to change your variable costs.

10
Conclusion and Resource

• So I know that was a lot to take in but it is a
  necessary evil when trying to figure out how to
  set your price or how much you need to sell. The
  good news is you dont have to do that manually.
• Microsoft has already created the spreadsheet for
  you you just have to
• input the price per service
• the amount you are selling
• the variable costs per service
• the fixed cost per service
• It does the calculations for you.
• It can be found here
• Break Even Analysis-Excel format
• If you have any questions using it, you can email
  me at
• tracy_at_collinsbookkeeping.com