How to work out your break even figure
Whether you want to work out an overall break even figure for your business or just the break even for a specific product or service, the process remains the same.
Calculate your fixed costs
These are also called “overheads” or “indirect costs”. They are “fixed” because they remain the same regardless of how much you make or sell. They include rent/commercial mortgage payments, electricity, water, wages, insurance, loan repayments, etc. Don’t miss anything out when totalling up these costs, because it will mean your break even figure isn’t accurate, which undermines its usefulness.
Work out your variable costs
Alternatively, these are called “direct” costs and they can include raw materials, packaging, distribution costs, etc. They’re called variable costs because the more you make or sell, the higher they are. Once again, factoring in all of your variable costs is essential.
Now add them together
You arrive at your break even figure when you add together your fixed and variable cost – it really is that simple.