Breakeven Analysis

1. Break Even Analysis For Service Businesses How To Find The Break Even Point

2. What Is Break Even Break Even is what you need to charge and how much you need to sell to break even in your business. You can discover this amount by total sales - variable costs - fixed costs =net profit Net Profit x number of total services sold =Break even point It’s confusing, I know. At the end of this presentation I will be providing you a link that does all of the calculations for you. You just enter numbers.

3. Why Find Break-Even Point? The ultimate goal to running a business is to make money. In order to make money you need to know if you are selling enough or charging enough to make a profit. By finding the break even point you can decide the absolute minimum you need so that your business does not run in the “red.”

4. How To Find Starting Figures Finding the starting figures is not an exact science it is more of a guesstimate. • Start out with an hourly rate you feel is reasonable • Start out with a total number of hours you want to work • If you have packages, come up with package prices • Come up with how many packages you want to sell per month Multiply those figures together (Ie hourly rate x number of hours you want to work) that would be your total sales

5. Variable Costs Variable costs are individual service costs that change as the amount of services you sell changes. Some types of variable costs are commissions, telephone bills, automobile gas, supplies, etc. Break them up into categories and then add them all together to get a total of variable costs per service per month.

6. Gross Margin Gross Margin is the total of sales minus the total variable costs minus the price that each service is sold for.

7. Fixed Costs Fixed costs are individual service costs that stay the same no matter how many services are sold. Some types of fixed costs are administrative costs, taxes, rent, insurance, etc etc. Estimate each one and break them up into categories and then add them all together to get a total of fixed costs per service per month.

8. Net Profit or Loss After taking the total expected sales minus the total variable costs minus the total fixed costs you will get the net profit or loss

9. Break Even Point Unfortunately, you will not have the break even point on your first try but you will know if you need to charge or sell more or less depending on whether you got a profit or a loss. Once you get your net profit or loss, you will have to continue to change the price or the amount that you want to sell in order to get the break even point. It is easiest to do this by round numbers (ie tens, twenties, hundreds, etc.) Remember if you change the amount that you sell you HAVE to change your variable costs.

10. Conclusion and Resource So I know that was a lot to take in but it is a necessary evil when trying to figure out how to set your price or how much you need to sell. The good news is you don’t have to do that manually. Microsoft has already created the spreadsheet for you you just have to • input the price per service • the amount you are selling • the variable costs per service • the fixed cost per service It does the calculations for you. It can be found here: Break Even Analysis-Excel format If you have any questions using it, you can email me at: tracy@collinsbookkeeping.com