📄ONE-PAGE LESSON 4
Key Points You’ll Learn
⚖️ Learn how to calculate your break-even point
📊 Understand the relationship between costs, price, and sales volume
✅ Use break-even analysis to set realistic goals and make better decisions
Why This Matters
Every business owner needs to know the sales level where the company stops losing money and starts making a profit.
That point is called the break-even point. Without this knowledge, you’re essentially running blind — you don’t know how much you must sell just to survive. With it, you gain clarity on pricing, sales targets, and expense control.
Core Insights
1. The Formula – Break-Even Point = Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit).
This tells you how many units you need to sell before you break even.
2. Fixed vs. Variable Costs –
- Fixed Costs: Expenses that don’t change with sales (rent, salaries, insurance).
- Variable Costs: Expenses that rise as sales increase (materials, shipping, commissions).
3. Margin of Safety – Selling well above your break-even point provides a safety cushion if sales drop.
4. Decision Tool – Break-even analysis helps you decide if your prices are high enough, if costs are too heavy, and whether a new product or service can realistically be profitable.
5. Limitations – Break-even doesn’t consider market demand or long-term changes, so use it as a guide, not a guarantee.
Quick Exercise
1)List your total fixed monthly costs (rent, salaries, etc.).
2)Calculate your average selling price per unit.
3) Estimate your variable cost per unit (materials, delivery, etc.).
4) Apply the formula: Fixed Costs ÷ (Price – Variable Cost) = Break-Even Sales Volume.
5) Ask: How many units above this do I need to sell to reach my target profit?
Call to Action
Your break-even point is the baseline — the minimum sales needed to keep the doors open. Once you know it, you can set sales goals with confidence and plan for growth instead of guessing.
Face it. Calculate it. Use it.