break-even analysis. digital safari institute greenbizz project key questions how many items should...

Break-even AnalysisBreak-even Analysis

Digital Safari InstituteGreenBizz Project

Key QuestionsKey Questions

•How many items should I order?How many items should I order?

•What should we charge per item?What should we charge per item?

•How many items do we need to sell to make money?How many items do we need to sell to make money?


When will Your When will Your Business Make Money?Business Make Money?

Break-even pointBreak-even point: no loss, no gain: no loss, no gain

You need to know: You need to know:

How many units/hours do you need to How many units/hours do you need to sell in order to cover your costs?sell in order to cover your costs?

How much revenue do you need to How much revenue do you need to bring in to cover your costs?bring in to cover your costs?


Break-even: Two PerspectivesBreak-even: Two Perspectives

Break-even Volume = Break-even Volume = Number of Units (or Hours)Number of Units (or Hours) to Achieve No Profit, No Loss to Achieve No Profit, No Loss

Break-even Sales = Break-even Sales = Level of Revenue NeededLevel of Revenue Needed to Achieve No Profit, No Loss to Achieve No Profit, No Loss


Fixed vs Variable CostsFixed vs Variable Costs

=

Profit (how much?)Profit (how much?)

Variable CostVariable Cost

Fixed Cost Fixed Cost

Gross RevenueGross Revenue

%%

%%

%%

100%100%


Wholesale vs Retail PriceWholesale vs Retail Price

==

Wholesale PriceWholesale Price

Retail MarkupRetail Markup

Retail PriceRetail Price

40%40%

60%60%

100%100%

Break-even VolumeBreak-even Volume


Data NeededData Needed

Total Fixed CostsTotal Fixed Costs

Price per UnitPrice per Unit

Variable Cost per UnitVariable Cost per Unit

Projected Unit SalesProjected Unit Sales

Projected Sales RevenueProjected Sales Revenue


Calculating Break-even VolumeCalculating Break-even Volume

Break-even Volume = Break-even Volume =

Total Fixed CostsTotal Fixed Costs

Sales Price per Unit – Variable Cost per UnitSales Price per Unit – Variable Cost per Unit


Data NeededData Needed

Total Fixed Costs = $175,000Total Fixed Costs = $175,000

Sales Price per Unit = $10Sales Price per Unit = $10

Variable Cost per Unit = $4Variable Cost per Unit = $4

Projected Unit Sales = 50,000Projected Unit Sales = 50,000

Projected Sales Revenue = $500,000Projected Sales Revenue = $500,000


Step #1 Step #1 –– Revenue Line Revenue LineTotal Revenue

Revenue Line

45 degree angle


Step #1 Step #1 –– Revenue Line Revenue Line$1,000K

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

00 10K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000

Unit Sales Volume

Total Revenue

Revenue Line


Step #2 Step #2 –– Fixed Costs Fixed Costs$1,000K

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

00 10K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000

Unit Sales Volume

Total Revenue

Fixed Costs = $175,000

Revenue Line


Step #3 Step #3 –– Variable Costs Variable Costs$1,000K

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

00 10K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000

Unit Sales Volume

Total Revenue


Variable Costs = $200,000

Total Costs = $375,000

Revenue Line


Step #3 Step #3 –– Variable Cost Line Variable Cost Line$1,000K

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

00 10K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000

Unit Sales Volume

Total Revenue




Revenue Line

Total Expense Line


Step #4 Step #4 –– Break-even Point Break-even Point$1,000K

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

00 10K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000

Unit Sales Volume

Total Revenue




B.E. = 29,167 units

Revenue Line

Total Expense Line


Step #4 Step #4 –– Break-even Point Break-even Point$1,000K

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

00 10K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000

Unit Sales Volume

Total Revenue




B.E. = 29,167 units

Profit = $125,000

Total Revenue = $500,000


Your Break-even EstimateYour Break-even EstimateEach Executive: $8,000/monthEach Tech/Sales: $7,000/monthEach Admin: $5,000/month

Headquarters: $1.50/sq. ft.

Utilities/Operations: $1,000/month

Your Product: $???/unitParts/Materials: $???Labor: $20/hr US or $0.50/hr ChinaShipping: $0.10/pound FOB China

Go For It!Go For It!


Scenario #1 Scenario #1 –– Lower Fixed Costs Lower Fixed Costs

$1,000K

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

00 10K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000

Unit Sales Volume

Total Revenue




B.E. = 26,250 units

Profit = $142,500


Lower Fixed Costs by 10%


Scenario #2 Scenario #2 –– Raise Unit Price Raise Unit Price$1,000K

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

00 10K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000

Unit Sales Volume

Total Revenue




B.E. = 25,000 units

Profit = $175,000


Raise Price by 10%


Scenario #3 Scenario #3 –– Lower Variable Costs Lower Variable Costs

$1,000K

$900K

$800K

$700K

$600K

$500K

$400K

$300K

$200K

$100K

00 10K 20K 30K 40K 50,000 60K 70K 80K 90K 100,000

Unit Sales Volume

Total Revenue




B.E. = 27,344 units

Profit = $145,000


Lower Variable Costs by 10%


Scenario ComparisonScenario Comparison

Original Costs & Pricing … BE = 29,167Profit: $125,000

Lower Fixed Costs by 10% … BE = 26,250Profit: $142,500

Raise Unit Price by 10% … BE = 25,000Profit: $175,000

Lower Variable Unit Cost by 10% … BE = 27,344Profit: $145,000

break-even analysis. digital safari institute greenbizz project key questions how many items should...

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