Breakeven Analysis | Tory Burch Foundation

Breakeven analysis is used to determine when your business will be able to cover all of its operating expenses and begin to make a profit. It is important to identify your startup costs, which will help you determine your sales revenue needed to pay ongoing business expenses.

For instance, if you have $5,000 of product sales, this will not cover $5,000 in monthly overhead expenses. The cost of selling $5,000 in retail goods could easily be $3,000 at the wholesale price, so the $5,000 in sales revenue only provides $2,000 in gross profit. The breakeven point is reached when revenue equals all business costs.

To calculate your breakeven point, you will need to identify your fixed and variable costs. Fixed costs are expenses that do not vary with sales volume, such as rent and administrative salaries. These expenses must be paid regardless of sales, and are often referred to as overhead costs. Variable costs fluctuate directly with sales volume, such as purchasing inventory, shipping, and manufacturing a product. To determine your breakeven point, use the equation below:

Breakeven point = fixed costs/ (unit selling price – variable costs)

About the author The United States Small Business Administration

The United States Small Business Administration (SBA) is a government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters”. The agency’s activities are summarized as the “3 Cs” of capital, contracts and counseling.

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