![]() When we talk about the break-even analysis, we’re also dealing with the contribution margin. Therefore, while a $5 sales price in the example above will allow your product or service to break-even, your variable costs will still need to be taken into account. However, the break-even analysis does not take into account the variable costs that are incurred for every good or unit of service sold. For example, if your fixed costs come to $5, then you will break even if your product sells for at least that amount. If your business has lower fixed costs, you will have a lower break-even point of sale. In a break-even analysis, the business owner will look at the fixed costs of the good or service relative to the profit that each additional good or unit of service will earn. Therefore, it is not recommended to be provided to investors, regulators, and other financial institutions. The break-even analysis determines the level of sales that the business must have, but it is a document intended only for internal usage. ![]() ![]() It examines the margin of safety for a business based on the revenues earned from the normal business activities. How to use a break-even analysis for your small businessĪ break-even analysis (or break-even point) is a calculation that determines how much of a good or service needs to be sold in order to cover the total fixed costs.
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