What is the breakeven point

Break-even Point is often misconceived as a point of recovery, however, these two concepts are quite different in nature. If the payback is expressed in months and refers to the moment when the cost of the enterprise will be returned to the organizer of the project, the breakeven point is something completely different. Every organization has a wealth of products, realizing that she receives no income, but expenses also shall not be.

At this point, each additional unit sold of product already begins to make a profit. It is this figure called break even point. Formula of break-even point is simple enough. It can be calculated as in terms of production and monetary equivalent. If you calculate in monetary value it calculates, first, dividing the cost of the product profit from its implementation, and then it is necessary that the value of the fixed costs divided by the result.

If the breakeven point in units is calculated,it is calculated by dividing the fixed costs on profits from the sale of goods. The calculation of this indicator is very important. If the return (profitability) of the organization may have fuzzy terms (optimistic and pessimistic plan), then the breakeven point is calculated accurately. It has the precise expression without approximations. This measure solves a number of problems and has several functions. First, it shows whether it is necessary to start production or other business. After all market laws always work, regardless of what the plans of the entrepreneur.

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If the market is too small or large number of similar goods, then the company just will not be able to reach break-even point and certainly does not make a profit. Therefore, it is necessary to calculate everything in advance. Revenue depends on the cost of the product and sales. The breakeven point allows you to calculate and adjust these indicators. If you change one of them, it is possible to modify the other. However, the minimum rate is always the one that is marked as the break-even point of the enterprise. If the company sells more products than noted in this figure, it indicates profit. The amount of profit is also calculated on the basis of this factor.

The break-even point is calculated as all expenses incurred by the firm. That and the cost for the purchase of goods and taxes, and wages to workers or sellers. If the revenue can cover all these points so achieved that the zero position when the company becomes self-sustaining. To work in the breakeven point has no particular meaning. For the entrepreneur it is important to get income from a startup business. Therefore, before the organisation is necessary to determine exactly whether a company step over that line.

In order to correctly identify the figure, it is necessary to ask one simple question: where is the threshold on which the company ceases to profit, but will not suffer a loss. It is known that the decrease in product sales costs also become lower. Therefore, it is important to count every little thing, which will affect the profitability of the organization. This threshold is at all firms. Entrepreneurs, who organize the company, focusing on the mind, and not under the influence of desires, a very carefully calculated risks. And those who give in to emotions, are often driven out of the market. The breakeven point as the point of profitability, a very important indicator in the business plan. It draws the attention of investors and other potential project sponsors, which is very significant return on investment and risks. While the businessman should be able to justify their conclusions about what the company will be able to cross the threshold of break-even existence.