Financial analytics is becoming an increasingly significant factor in various industries such as the banking sector, insurance or investment management, and the healthcare industry. Numerous companies and organizations use…continue reading
52+ Sample Break Even Analysis
Break Even Point Analysisdownload now
Sample Break Even Analysisdownload now
Revenue Costs and Break-Even Analysisdownload now
Project Break Even Analysisdownload now
Break Even Profit Analysisdownload now
Engineering Economic Break Even Analysisdownload now
Example of Break-even Analysis Diagramdownload now
Basic Break-Even Analysisdownload now
Business Break Even Analysisdownload now
Break Even Analysis Worksheetdownload now
Break Even Method of Investment Analysisdownload now
Basic Break Even Analysisdownload now
Application of Break-Even Point Analysisdownload now
Tourism Administration Break Even Analysisdownload now
Municipal Pool Break Even Analysisdownload now
Projects Break-Even Analysisdownload now
Simple Break Even Analysisdownload now
Break Even Analysis for Small Businessdownload now
Break-Even Analysis in a Retail Storedownload now
Break Even Point and Incremental Analysisdownload now
Mini Lesson Break-Even Analysisdownload now
Sample Break Even Analysis Chartdownload now
Break-even Analysis in Engineering Projectsdownload now
Case Study Re-look at Break-Even Analysisdownload now
Break Even Business Analysisdownload now
Business Textbook Break Even Analysisdownload now
Business Studies Break Even Analysisdownload now
Rationality of Stochastic Breakeven Analysisdownload now
Break Even Analysis as a Decision Tool Templatedownload now
Standard Break Even Analysisdownload now
Break-Even Price Analysisdownload now
Break-Even Analysis and Market Equilibriumdownload now
Fromal Break Even Analysisdownload now
Study of Profitability and Break-Even Analysisdownload now
Break Even Marketing Analysisdownload now
Agricultural Development Break-Even Analysisdownload now
Managerial Economics Break Even Analysisdownload now
Break Even Budget Analysisdownload now
Break Even Case Study Analysisdownload now
Break Even Analysis Formatdownload now
Calculating Breakeven Analysisdownload now
Company Break Even Analysisdownload now
Break-Even Analysis Worksheetdownload now
Sample Break-Even Analysis Projectiondownload now
Break Even Analysis in Exampledownload now
Break Even Analysis Statement Templatedownload now
Break Even Accounting Analysisdownload now
Break-Even Analysis and Scenario Worksheetdownload now
Breakeven Construction Analysisdownload now
Factors Breakeven Analysisdownload now
Small Scale Production of Break Even Analysisdownload now
Break Even Analysis and Profit Planning Templatedownload now
Company Break Even Analysis Templatedownload now
Break-Even Analysis: What Is It?
Break-even analysis, aka break-even point analysis, is a thorough calculation that identifies how many products or services must be sold to pay for the total business costs. In short, this form of data analysis determines if your revenue can cover the expenses in a certain period. And if the revenue reaches more than the break-even point, that means the business garners profits. On the other hand, not reaching that point means your company will experience heavy losses.
According to SmallBizGenius, only 40% of small businesses are profitable.
Why Is Break-Even Analysis Important?
Indeed, it is through the break-even analysis that you aim to get even in terms of covering the total business expenses with your revenues. But why is it important in the first place? In this section, get to know the major highlights of how essential break-even analysis is.
Covers All Types of Costs
It is broad to just say that break-even analysis helps you become a more profitable business. How so? The break-even point investigates the safety margin of business according to the earned revenues. All types of costs will be covered from fixed costs (such as a rental) and variable costs (such as business materials). And initiating a cost analysis is highly recommended to forecast your profits.
Sets a Practical and Timely Financial Projection
Break-even analysis is your most reliable tool to come up with financial projections. That means you can determine when your business starts to break even from the financing sources analyzed. It is important to help you set the startup capital amount and even how long the capital lasts. Oftentimes, it takes around six months or even 18 months to break even. Just make sure that if it takes a while, review the costs and pricing and aim to boost the margins in a specified time. Just like SMART goals, BEP’s projections are specific, measurable, achievable, relevant, and timely.
Benefits Different Businesses
Indeed, break-even analysis plays a huge role in helping small businesses but the benefits fall for all types of businesses as well. Even the most established companies can still conduct a break-even point analysis for other financial goals. For example, you might need a new employee for the organization so how much more money would be needed to cover that added expense will be answered through the analysis. The same goes for enterprises that borrow money where there is a monthly budget with interest to pay.
Works as a Motivational Conduit
Another special factor about break-even analysis is how it can motivate businesses and their stakeholders in general. An example is when you analyze the expected monthly or daily budget acquired from sales until you set a goal for bigger profits in the next few weeks. With BEP in your business and sales plans, you can dream to be more lucrative than ever.
Components of Break-Even Analysis
There are important terms you should understand in break-even analysis. And these components are the following:
How to Run a Break-Even Analysis
After a full introduction of the break-even analysis’s definition, importance, and components, you are more than ready to conduct the break-even analysis itself. In fact, you only need to mind these five steps to run an effective break-even analysis:
Step 1: Determine the Different Costs in Your Business
Every business is different. And the same applies to what possible expenses or costs are involved in your company. Identify the variable costs, fixed costs, contribution margin, and other essential expenses first. Or, you can have a full business analysis to know what underlying expenses are involved that you may have overlooked. With enough knowledge about how your company runs, you will eventually find it easy to run the analysis later on.
Step 2: Choose a Sample Break-Even Analysis Template
With over 52+ break-even analysis samples posted above in this article, take advantage of picking your preferred template to optimize. You may opt for a break-even analysis template for startup business and more downloadable quantitative and qualitative analysis examples. The best part is you can edit per template afterward. There is enough room to alter the sample’s format, design, content, and more. Thus, you never have to worry about running a break-even analysis from scratch.
Step 3: Use the Appropriate BEP Formula
For the meat of your break-even analysis, determine the right BEP formula to use for analyzing. Remember that there are two examples. One formula is according to the number of units sold while the other is according to sales dollars. First, get to know how BEP is calculated on units. You will divide the fixed costs by the revenue of each unit. Then subtract the variable cost of each unit. Hence, the formula is: break-even point (unit) = fixed costs ÷ (revenue per unit ? variable cost per unit). On another note, try BEP according to sales dollars where you divide fixed costs by the contribution margin. This margin is identified from the variable cost minus the product price. And the full formula for that is: break-even point (sales dollars) = fixed costs ÷ contribution margin.
Step 4: Observe an Easy-to-Follow Structure
From the whole data inputted and accumulated by your break-even analysis, make sure that the content is easy to read. Your whole document will be easy to follow if it is well-written and organized. A tip to organize your analysis is by adding a break-even chart, analysis chart, timeline chart, or graph. And you need not look for a different break-even analysis graph maker since you can add different visual organizers to your analysis template. Also, be specific with your data as it does not have to be too long.
Step 5: Make the Right Move
While break-even analysis helps you reach your enterprise’s break-even point, it doesn’t mean that you just stop there. The next step is to come up with a corrective action plan on how to be profitable already. You never know your company may be capable of selling more products than how much was realized during the break-even. Hence, determine if prices should change, if you are following the current market trends, or perhaps reduce production costs. And this solution you come up with should be improving the business rather than the other way around.
What are the three main assumptions of break-even analysis?
The three main assumptions of break-even analysis are the average per-unit sales price, average per-unit cost, and the monthly fixed cost. And each example plays a great role in analyzing the BEP.
What is contribution analysis?
Contribution analysis is another analysis report where you determine a proposed development’s contribution to a business whether the changes are good or bad. This is to help analyze if the contribution is not only successful but also reasonable.
What is the formula for profit?
In calculating your profit, the only formula you need is to subtract the total revenue from the total expenses.
Who invented break-even analysis?
Break-even analysis was coined by a Columbia University professor and industrial engineer named Walter Rautenstrauch way back in 1930. And it was there that break-even analysis proved the relationship between the costs and sales revenue in a specified amount of time.
It is a no-brainer that everyone wants a lucrative business. However, you can’t just hope to accumulate profits without any strategic plan. The key is to be realistic and knowledgeable with your business expenses and to reach that break-even point. Thankfully, break-even analysis is a step closer to your dream of having a profitable company. Optimize a sample break-even analysis template now!