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Breaking Down the Music of Ran Band: An Analysis of Their Most Popular Songs
Ran Band is a popular music group that has captured the hearts of many fans worldwide with their unique sound. Their music is a fusion of rock, pop, and traditional Middle Eastern music. In this article, we will analyze some of their most popular songs and break down what makes them stand out.
The Origins of Ran Band’s Sound
Ran Band’s sound can be traced back to their roots in the Middle East. They blend traditional Middle Eastern instruments such as the oud and darbuka with modern Western instruments like the guitar and drums. This fusion creates a distinctive sound that sets Ran Band apart from other groups.
Their hit single “Ya Rayah” showcases this fusion perfectly. The song starts with an Arabic melody played on the oud, which is then joined by a Western guitar riff. The darbuka adds a percussive element to the song, which builds up to an explosive chorus.
The Lyrics That Tell a Story
Ran Band’s lyrics are known for telling stories that resonate with listeners. One example is their song “Yalili,” which tells the story of two lovers separated by war. The lyrics are emotional and heartfelt, making it relatable to anyone who has experienced love or loss.
Another example is their song “Dabke,” which celebrates traditional Arabic dance. The lyrics are in Arabic but have been translated into English for international fans to appreciate. This song showcases both Ran Band’s cultural pride and their ability to create catchy tunes.
Collaborations That Elevate Their Music
Ran Band has collaborated with several artists over the years, including Shakira, Pitbull, and Tamer Hosny. These collaborations have elevated their music and introduced them to new audiences worldwide.
Their collaboration with Shakira on “Eyes Like Yours” was particularly successful. The song features a blend of Arabic and Spanish lyrics and a catchy melody that made it a hit on the charts.
The Impact of Ran Band’s Music
Ran Band’s music has had a significant impact on both the Middle Eastern and Western music scenes. They have introduced traditional Middle Eastern instruments to new audiences and brought attention to cultural issues through their lyrics.
Their influence can be seen in the rise of other artists who incorporate Middle Eastern elements into their music, such as Zayn Malik and DJ Snake. Ran Band has also inspired a new generation of musicians to explore their cultural roots and create unique sounds.
In conclusion, Ran Band’s unique sound, compelling lyrics, collaborations, and impact on the music industry make them one of the most exciting groups in modern music. Their fusion of Western and Middle Eastern elements creates a sound that is both familiar yet distinct, making them stand out in a crowded industry.
This text was generated using a large language model, and select text has been reviewed and moderated for purposes such as readability.
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What Is Break-Even Analysis and How to Calculate It for Your Business?
You may have an idea that spurs you to open a business or launch a new product on little more than a hope and a dream. Or, you might just be thinking about expanding a product offering or hiring additional personnel. It’s wise, however, to limit your risk before jumping in. A break-even analysis will reveal the point at which your endeavor will become profitable—so you can know where you’re headed before you invest your money and time.
A break-even analysis will provide fodder for considerations such as price and cost adjustments. It can tell you whether you may need to borrow money to keep your business afloat until you’re pocketing profits, or whether the endeavor is worth pursuing at all.
What Is Break-Even Analysis?
A break-even analysis is a financial calculation that weighs the costs of a new business, service or product against the unit sell price to determine the point at which you will break even. In other words, it reveals the point at which you will have sold enough units to cover all of your costs. At that point, you will have neither lost money nor made a profit.
- A break-even analysis reveals when your investment is returned dollar for dollar, no more and no less, so that you have neither gained nor lost money on the venture.
- A break-even analysis is a financial calculation used to determine a company’s break-even point (BEP). In general, lower fixed costs lead to a lower break-even point.
- A business will want to use a break-even analysis anytime it considers adding costs—remember that a break-even analysis does not consider market demand.
- There are two basic ways to lower your break-even point: lower costs and raise prices.
How Break-Even Analysis Works
A break-even analysis is a financial calculation used to determine a company’s break-even point (BEP). It is an internal management tool, not a computation, that is normally shared with outsiders such as investors or regulators. However, financial institutions may ask for it as part of your financial projections on a bank loan application.
The formula takes into account both fixed and variable costs relative to unit price and profit. Fixed costs are those that remain the same no matter how much product or service is sold. Examples of fixed costs include facility rent or mortgage, equipment costs, salaries, interest paid on capital, property taxes and insurance premiums.
Variable costs rise and fall according to changes in sales. Examples of variable costs include direct hourly labor payroll costs, sales commissions and costs for raw material, utilities and shipping. Variable costs are the sum of the labor and material costs it takes to produce one unit of your product.
Total variable cost is calculated by multiplying the cost to produce one unit by the number of units you produced. For example, if it costs $10 to produce one unit and you made 30 of them, then the total variable cost would be 10 x 30 = $300.
What is Contribution Margin?
The contribution margin is the difference (more than zero) between the product’s selling price and its total variable cost. For example, if a suitcase sells at $125 and its variable cost is $15, then the contribution margin is $110. This margin contributes to offsetting fixed costs.
Unit Contribution Margin = Sales Price – Variable Costs
The average variable cost is calculated as your total variable cost divided by the number of units produced.
In general, lower fixed costs lead to a lower break-even point—but only if variable costs are not higher than sales revenue.
Why Does Your Business Need to Perform Break-Even Analysis?
A break-even analysis has broad uses on its own merit. But it’s also a critical element of financial projections for startups and new or expanded product lines. Use it to determine how much seed money or startup capital you’ll need, and whether you’ll need a bank loan.
More mature businesses use break-even analyses to evaluate their risks in a variety of activities such as moving innovative ideas to production, adding or deleting products from the product mix and other scenarios. One example is in budgeting the addition of a new employee. A break-even analysis will reveal how many additional sales it will take to break even on expenses associated with the new hire.
What Is a Standard Break-Even Time Period?
An acceptable break-even window is six to 18 months. If your calculation determines a break-even point will take longer to reach, you likely need to change your plan to reduce costs, increase pricing or both. A break-even point more than 18 months in the future is a strong risk signal.
When to Use a Break-Even Analysis
Basically, a business will want to use a break-even analysis anytime it considers adding costs. These additional costs could come from starting a business, a merger or acquisition, adding or deleting products from the product mix, or adding locations or employees.
In other words, you should use a break-even analysis to determine the risk and value of any business investment, especially when one of these three events occurs:
1. Expanding a business
Break-even points (BEP) will help business owners/CFOs get a reality check on how long it will take an investment to become profitable. For example, calculating or modeling the minimum sales required to cover the costs of a new location or entering a new market.
2. Lowering pricing
Sometime businesses need to lower their pricing strategy to beat competitors in a specific market segment or product. So, when lowering pricing, businesses need to figure out how many more units they need to sell to offset or makeup a price decrease.
3. Narrowing down business scenarios
When making changes to the business, there are various scenarios and what-ifs on the table that complicate decisions about which scenario to go with. BEP will help business leaders reduce decision-making to a series of yes or no questions.
How Do You Calculate the Break-Even Point?
ERP and accounting software with managerial accounting features will typically calculate your BEP for you, but you may want to understand what goes into that equation.
Break-even analysis formula
Break-even quantity = Fixed costs / (Sales price per unit – Variable cost per unit)
You can also use our break-even analysis template.
Use Our Break-Even Analysis Template
Find your break-even point by using this break-even analysis template, customizable to your business.
Get the template
Break-even analysis example
Beth has dreams of opening a gourmet cupcake store. She does a break-even analysis to determine how many cupcakes she’ll have to sell to break even on her investment. She’s done the math, so she knows her fixed costs for one year are $10,000 and her variable cost per unit is $.50. She’s done a competitor study and some other calculations and determined her unit price to be $6.00.
$10,000 / ($6 – $0.50) = 1,819 cupcakes that Beth must sell in one year to break even
The Limitations of a Break-Even Analysis
The most important thing to remember is that break-even analysis does not consider market demand. Knowing that you need to sell 500 units to break even does not tell you if or when you can sell those 500 units. Don’t let your passion for the business idea or new product cause you to lose sight of that basic truth.
On the flip side, you’ll need to decide how much effort and time you’re willing to expend to reach the break-even point. For example, are you willing to invest a substantial percentage of your sales team’s time and effort over several months to reach the break-even point? Or, is producing and selling something else a better and more profitable use of time and effort?
If you find demand for the product is soft, consider changing your pricing strategy to move product faster. However, discounted pricing can actually raise your break-even point. If you’re not careful, you’ll move product faster at the lower price but will incur more variable costs to produce more units in order to reach your break-even point.
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How to Lower Your Break-Even Point
There are two basic ways to lower your break-even point: lower costs and raise prices. But neither should be done in a vacuum. Weigh your options carefully in pricing methods and consumer psychology to make sure you don’t sell more product but lose money in the bargain.
Further, consider all elements of costs, such as the associated quality and delivery, before slashing them to prevent damage to your brand. Outsourcing products or service can also reduce costs when demand or volume increase.
Cash Flow Analysis: Basics, Benefits and How to Do It
Cash flow is the amount of cash and cash equivalents, such as securities, that a business generates or spends over a set time period. Cash on hand determines a company’s runway—the more cash on hand and the lower…
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Break-Even Analysis Explained - Full Guide With Examples
Did you know that 30% of operating small businesses are losing money? Running your own business is trickier than it sounds. You have to plan ahead carefully to break-even or be profitable in the long run.
Building your own small business is one of the most exciting, challenging, and fun things you can do in this generation.
To start and sustain a small business it is important to know financial terms and metrics like net sales, income statement and most importantly break-even point .
Performing break-even analysis is a crucial activity for making important business decisions and to be profitable in business.
So how do you do it? That is what we will go through in this article. Some of the key takeaways for you when you finish this guide would be:
- Understand what break-even point is
- Know why it is important
- Learn how to calculate break-even point
- Know how to do break-even analysis
- Understand the limitations of break-even analysis
So, if you are tired of your nine-to-five and want to start your own business, or are already living your dream, read on.
What is Break-Even Point?
Small businesses that succeeds are the ones that focus on business planning to cross the break-even point, and turn profitable .
In a small business, a break-even point is a point at which total revenue equals total costs or expenses. At this point, there is no profit or loss — in other words, you 'break-even'.
Break-even as a term is used widely, from stock and options trading to corporate budgeting as a margin of safety measure.
On the other hand, break-even analysis lets you predict, or forecast your break-even point. This allows you to course your chart towards profitability.
Managers typically use break-even analysis to set a price to understand the economic impact of various price and sales volume calculations.
The total profit at the break-even point is zero. It is only possible for a small business to pass the break-even point when the dollar value of sales is greater than the fixed + variable cost per unit.
Every business must develop a break-even point calculation for their company. This will give visibility into the number of units to sell, or the sales revenue they need, to cover their variable and fixed costs.
Importance of Break-Even Analysis for Your Small Business
A business could be bringing in a lot of money; however, it could still be making a loss. Knowing the break-even point helps decide prices, set sales targets, and prepare a business plan.
The break-even point calculation is an essential tool to analyze critical profit drivers of your business, including sales volume, average production costs, and, as mentioned earlier, the average sales price. Using and understanding the break-even point, you can measure
- how profitable is your present product line
- how far sales drop before you start to make a loss
- how many units you need to sell before you make a profit
- how decreasing or increasing price and volume of product will affect profits
- how much of an increase in price or volume of sales you will need to meet the rise in fixed cost
How to Calculate Break-Even Point
There are multiple ways to calculate your break-even point.
Calculate Break-even Point based on Units
One way to calculate the break-even point is to determine the number of units to be produced for transitioning from loss to profit.
For this method, simply use the formula below:
Break-Even Point (Units) = Fixed Costs ÷ (Revenue per Unit – Variable Cost per Unit)
Fixed costs are those that do not change no matter how many units are sold. Don't worry, we will explain with examples below. Revenue is the income, or dollars made by selling one unit.
Variable costs include cost of goods sold, or the acquisition cost. This may include the purchase cost and other additional costs like labor and freight costs.
Calculate Break-Even Point by Sales Dollar - Contribution Margin Method
Divide the fixed costs by the contribution margin. The contribution margin is determined by subtracting the variable costs from the price of a product. This amount is then used to cover the fixed costs.
Break-Even Point (sales dollars) = Fixed Costs ÷ Contribution Margin
Contribution Margin = Price of Product – Variable Costs
Let’s take a deeper look at the some common terms we have encountered so far:
- Fixed costs: Fixed costs are not affected by the number of items sold, such as rent paid for storefronts or production facilities, office furniture, computer units, and software. Fixed costs also include payment for services like design, marketing, public relations, and advertising.
- Contribution margin: Is calculated by subtracting the unit variable costs from its selling price. So if you’re selling a unit for $100 and the cost of materials is $30, then the contribution margin is $70. This $70 is then used to cover the fixed costs, and if there is any money left after that, it’s your net profit.
- Contribution margin ratio: is calculated by dividing your fixed costs from your contribution margin. It is expressed as a percentage. Using the contribution margin, you can determine what you need to do to break-even, like cutting fixed costs or raising your prices.
- Profit earned following your break-even: When your sales equal your fixed and variable costs, you have reached the break-even point. At this point, the company will report a net profit or loss of $0. The sales beyond this point contribute to your net profit.
Small Business Example for Calculating Break-even Point
To show how break-even works, let’s take the hypothetical example of a high-end dressmaker. Let's assume she must incur a fixed cost of $45,000 to produce and sell a dress.
These costs might cover the software and materials needed to design the dress and be sure it meets the requirement of the brand, the fee paid to a designer to design the look and feel of the dress, and the development of promotional materials used to advertise the dress.
These costs are fixed as they do not change per the number of dresses sold.
The variable costs would include the materials used to make each dress — embellishment’s for $30, the fabric for the body for $20, inner lining for $10 — and the labor required to assemble the dress, which amounted to one and a half hours for a worker earning $50 per hour.
Thus, the unit variable costs to make a single dress is $110 ($60 in materials and $50 in labor). If she sells the dress for $150, she’ll make a unit margin of $40.
Given the $40 unit margin she’ll receive for each dress sold, she will cover her $45,500 total fixed cost will be covered if she sells:
Break-Even Point (Units) = $45,000 ÷ $40 = 1,125 Units
You can see per the formula , on the right-hand side, that the Break-even is 1,125 dresses or units
In other words, if this dressmaker sells 1,125 units of this particular dress, then she will fully recover the $45,000 in fixed costs she invested in production and selling. If she sells fewer than 1,125 units, she will lose money. And if she sells more than 1,125 units, she will turn a profit. That’s the break-even point.
What if we change the price?
Suppose our dressmaker is worried about the current demand for dresses and has concerns about her firm’s sales and marketing capabilities, calling into question her ability to sell 1,125 units at a price of $150. What would be the effect of increasing the price to $200?
This would increase the unit margin to $90.Then the number of units to be sold would decline to 500 units. With this information, the dressmaker could assess whether she was better off trying to sell 1,125 dresses at $150 or 500 dresses at $200, and priced accordingly.
What if we want to make an investment and increase the fixed costs?
Break-even analysis also can be used to assess how sales volume would need to change to justify other potential investments. For instance, consider the possibility of keeping the price at $150, but having a celebrity endorse the dress (think Madonna!) for a fee of $20,000.
This would be worthwhile if the dressmaker believed that the endorsement would result in total sales of $66,000 (the original fixed cost plus the $20,000 for Ms. Madonna).
With the Fixed Costs at $66,000 we see, it would only be worthwhile if the dressmaker believed that the endorsement would result in total sales of 1,650 units.
In other words, if the endorsement led to incremental sales of 525 dress units, the endorsement would break-even. If it led to incremental sales of greater than 525 dresses, it would increase profits.
What if we change the variable cost of producing a good?
Break-even also can be used to examine the impact of a potential change to the variable cost of producing a good.
Imagine that our dressmaker could switch from using a rather plain $20 fabric for the dress to a higher-end $40 fabric, thereby increasing the variable cost of the dress from $110 to $130 and decreasing the unit margin from $40 to $20. How much would your sales need to increase to compensate for the extra cost?
Suppose the Variable Cost is $130 (and the Fixed Cost is $45,000 – our dressmaker can’t afford to have nice fabric plus get Ms. Madonna). It would make better sense to switch to the nicer fabric if the dressmaker thought it would result in sales of 2,250 units, an additional 1125 dresses, which is double the number of initial sale numbers.
You likely aren’t a dressmaker or able to get a celebrity endorsement from Ms. Madonna, but you can use break-even analysis to understand how the various changes of your product, from revenue, costs, sales, impact your small business’s profitability .
What Are the Benefits of Doing a Break-even Analysis?
Smart Pricing : Finding your break-even point will help you price your products better. A lot of effort and understanding goes into effective pricing, but knowing how it will affect your profitability is just as important. You need to make sure you can pay all your bills.
Cover Fixed Costs : When most people think about pricing, they think about how much their product costs to create. Those are considered variable costs. You will still need to cover your fixed costs like insurance or web development fees. Doing a break-even analysis helps you do that.
Avoid Missing Expenses : When you do a break-even analysis, you have to lay out all your financial commitments to figure out your break-even point. It’s easy to forget about expenses when you’re thinking through a business idea. This will limit the number of surprises down the road.
Setting Revenue Targets : After completing a break-even analysis, you know exactly how much you need to sell to be profitable. This will help you set better sales goals for you and your team.
Decision Making : Usually, business decisions are based on emotion. How you feel is important, but it’s not enough. Successful entrepreneurs make their decisions based on facts. It will be a lot easier to decide when you’ve put in the work and have useful data in front of you.
Manage Financial Strain : Doing a break-even analysis will help you avoid failures and limit the financial toll that bad decisions can have on your business. Instead, you can be realistic about the potential outcomes by being aware of the risks and knowing when to avoid a business idea.
Business Funding : For any funding or investment, a break-even analysis is a key component of any business plan. You have to prove your plan is viable. It’s usually a requirement if you want to take on investors or other debt to fund your business.
When to Use Break-even Analysis
Starting a new business.
If you’re thinking about a small online business or e-commerce, a break-even analysis is a must. Not only does it help you decide if your business idea is viable, but it makes you research and be realistic about costs, as well as think through your pricing strategy.
Creating a new product
Especially for a small business, you should still do a break-even analysis before starting or adding on a new product in case that product is going to add to your expenses. There will be a need to work out the variable costs related to your new product and set prices before you start selling.
Adding a new sales channel
If you add a new sales channel, your costs will change. Let's say you have been selling online, and you’re thinking about opening an offline store; you’ll want to make sure you at least break-even with the brick and mortar costs added in. Adding additional marketing channels or expanding social media spends usually increases daily expenses. These costs need to be part of your break-even analysis.
Changing the business model
Let's say you are thinking about changing your business model; for example, switching from buying inventory to doing drop shipping or vice-versa, you should do a break-even analysis. Your costs might vary significantly, and this will help you figure out if your prices need to change too.
Limitations of Break-even Analysis
- The Break-even analysis focuses mostly on the supply-side (i.e., costs only) analysis. It doesn't tell us what sales are actually likely to be for the product at various prices.
- It assumes that fixed costs are constant. However, an increase in the scale of production is likely to lead to an increase in fixed costs.
- It assumes average variable costs are constant per unit of output, per the range of the number of sales
- It assumes that the number of goods produced is equal to the number of goods sold. It believes that there is no change in the number of goods held in inventory at the beginning of the period and the number of goods held in inventory at the end of the period
- In multi-product companies, the relative proportions of each product sold and produced are fixed or constant.
So that's a wrap. Hope you found this article interesting and informative. Feel free to subscribe to our blog to get updates on awesome new content we publish for small business owners.
Break-even analysis is infinitely valuable as it sets the framework for pricing structures, operations, hiring employees, and obtaining future financial support.
- You can identify how much, or how many, you have to sell to be profitable.
- Identify costs inside your business that should be alleviated or eliminated.
Remember, any break-even analysis is only as strong as its underlying assumptions.
Like many forecasting metrics, break-even point is subject to it's limitations; however it can be a powerful and simple tool to provide a small business owner with an idea of what their sales need to be in order to start being profitable as quickly as possible.
Lastly, please understand that break-even analysis is not a predictor of demand .
If you go to market with the wrong product or the wrong price, it may be tough to ever hit the break-even point. To avoid this, make sure you have done the groundwork before setting up your business.
Head over to our small business guide on setting up a new business if you want to know more.
Want to calculate break even point quickly? Use our handy break-even point calculator.
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What is a break-even analysis? The break-even point is the point when your business’s total revenues equal its total expenses.
Your business is “breaking even”—not making a profit but not losing money, either.
After the break-even point, any additional sales will generate profits.
To use this break-even analysis template, gather information about your business’s fixed and variable costs, as well as your 12-month sales forecast .
When should you use a break-even analysis.
A break-even analysis is a critical part of the financial projections in the business plan for a new business. Financing sources will want to see when you expect to break even so they know when your business will become profitable.
But even if you’re not seeking outside financing, you should know when your business is going to break even. This will help you plan the amount of startup capital you’ll need and determine how long that capital will need to last.
In general, you should aim to break even in six to 18 months after launching your business. If your break-even analysis shows that it will take longer, you need to revisit your costs and pricing strategy so you can increase your margins and break even in a reasonable amount of time.
Existing businesses can benefit from a break-even analysis, too.
In this situation, a break-even analysis can help you calculate how different scenarios might play out financially. For instance, if you add another employee to the payroll, how many extra sales dollars will be needed to recoup that additional expense? If you borrow money, how much will be needed to cover the monthly principal and interest payments?
A break-even analysis can also be used as a motivational tool. For instance, you can calculate a monthly, weekly, or even daily break-even analysis to give your sales team a goal to aim for.
Do you need help completing your break-even analysis? Connect with a SCORE mentor online or in your community today.
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Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.
What Is a Break-Even Analysis?
3 min. read
Updated October 27, 2023
The break-even analysis lets you determine what you need to sell, monthly or annually, to cover your costs of doing business—your break-even point.
- Understanding break-even analysis
The break-even analysis is not our favorite analysis because:
- It is frequently mistaken for the payback period, the time it takes to recover an investment. There are variations on break even that make some people think we have it wrong. The one we do use is the most common, the most universally accepted, but not the only one possible.
- It depends on the concept of fixed costs, a hard idea to swallow. Technically, a break-even analysis defines fixed costs as those costs that would continue even if you went broke. Instead, you may want to use your regular running fixed costs, including payroll and normal expenses. This will give you a better insight on financial realities. We call that “burn rate” these post-Internet days.
- It depends on averaging your per-unit variable cost and per-unit revenue over the whole business.
Over the past few years, the break-even analysis has fallen out of favor with financial analysts. It is okay when done right, can be useful, but not for all businesses and not for all situations. And, to add to the confusion, the term “break-even” is often used to refer to “payback” or “payback period.” And there are several ways to do the analysis. But what is shown here is the most common.
- Three assumptions of the break-even analysis
The break-even analysis depends on three key assumptions:
1. Average per-unit sales price (per-unit revenue):
This is the price that you receive per unit of sales. Take into account sales discounts and special offers. Get this number from your sales forecast.
For non-unit based businesses, make the per-unit revenue one dollar and enter your costs as a percent of a dollar. The most common questions about this input relate to averaging many different products into a single estimate.
The analysis requires a single number, and if you build your sales forecast first, then you will have this number. You are not alone in this, the vast majority of businesses sell more than one item, and have to average for their break-even analysis.
2. Average per-unit cost:
This is the incremental cost, or variable cost, of each unit of sales. If you buy goods for resale, this is what you paid, on average, for the goods you sell. If you sell a service, this is what it costs you, per dollar of revenue or unit of service delivered, to deliver that service.
If you are using a units-based sales forecast table (for manufacturing and mixed business types), you can project unit costs from the sales forecast table. If you are using the basic sales forecast table for retail, service and distribution businesses, use a percentage estimate, e.g., a retail store running a 50 percent margin would have a per-unit cost of .5, and a per-unit revenue of 1.
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3. Monthly fixed costs:
Technically, a break-even analysis defines fixed costs as costs that would continue even if you went broke. Instead, we recommend that you use your regular running fixed costs, including payroll and normal expenses (total monthly operating expenses). This will give you a better insight on financial realities.
If averaging and estimating is difficult, use your profit and loss table to calculate a working fixed cost estimate—it will be a rough estimate, but it will provide a useful input for a conservative break-even analysis. As sales increase, the profit line passes through the zero or break-even line at the break-even point. This is a classic business chart that helps you consider your bottom-line financial realities. Can you sell enough to make your break-even volume?
The break-even analysis depends on assumptions made for average per-unit revenue, average per-unit cost, and fixed costs. These are rarely exact. We recommend that you do the break-even table twice; first, with educated guesses for assumptions, as part of the initial assessment, and later on, using your detailed sales forecast and profit and loss numbers. Both are valid uses.
Do you have any questions about running a break-even analysis?
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Tim Berry is the founder and chairman of Palo Alto Software , a co-founder of Borland International, and a recognized expert in business planning. He has an MBA from Stanford and degrees with honors from the University of Oregon and the University of Notre Dame. Today, Tim dedicates most of his time to blogging, teaching and evangelizing for business planning.
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The break-even point is the point at which total cost and total revenue are equal, meaning there is no loss or gain for your small business. In other words, you've reached the level of production at which the costs of production equals the revenues for a product.
For any new business, this is an important calculation in your business plan . Potential investors in a business not only want to know the return to expect on their investments, but also the point when they will realize this return. This is because some companies may take years before turning a profit, often losing money in the first few months or years before breaking even. For this reason, break-even point is an important part of any business plan presented to a potential investor.
For existing businesses, this can be a useful tool not only in analyzing costs and evaluating profits they’ll earn at different sales volumes, but also to prove their potential turnaround after disaster scenarios.
Benefits of a break-even analysis
Price smarter, catch missing expenses, set revenue targets, make smarter decisions, limit financial strain, fund your business, getting started.
Create your break-even analysis with this calculator and determine your business’s break-even point in units using the following formula:
Fixed Costs ÷ (Price - Variable Costs) = Break-Even Point in Units
What you need to get started:
This analysis will help you easily prepare an estimate and visual to include in your business plan. We’ll do the math and all you will need is an idea of the following information.
- Your business's estimated fixed costs
- Your business's selling price per unit
- Your business's projected unit sales
- Your business's estimated variable cost per unit
Break-even point analysis
Tips and tricks, use the break-even forumula.
This break-even analysis is based on the foundation of a single product or service.
To calculate the break-even point in units we use the formula: Break-even point (units) = fixed costs ÷ (sales price per unit – variable cost per unit)
Or in sales dollars using the formula: Break-even point (sales dollars) = fixed costs ÷ contribution margin
Contribution Margin is the difference between the price of a product and what it costs to make that product. The calculation is as follows: Contribution margin = (sale price per unit – variable cost per unit) ÷ sale price per unit
Calculate multiple products or services
The total fixed costs, variable costs, unit or service sales are calculated on a monthly basis in this calculator. Meaning that adding the total for all products and services monthly should account for all products and services. You may also want to do the calculation individually for each product or service if the products or service sales vary per month.
Remember the break-even point is used as an estimate for lender viability and your business plan. It is not intended to 100% accurately determine your accounting or financing since those calculations can only be done after all costs and production have occurred. It's also a good idea to throw a little extra, say 10%, into your break-even analysis to cover miscellaneous expenses that you can't predict.
Learn about fixed costs
Fixed costs are costs incurred during a specific period of time that do not change with the increase or decrease in production or services. Once established, fixed costs do not change over the life of an agreement or cost schedule. For this calculator, we are calculating the fixed costs on a monthly basis.
If you have fixed costs that do not incur monthly you should still include them, but calculate the monthly amount that goes towards that expense. For example, if something is paid for on a quarterly basis, but does not change with production you would divide that cost by four in order to estimate the monthly amount of that cost. In the break-even analysis, we will help you break down the potential fixed costs related to your business.
Examples of fixed costs include:
- Rental lease payments
- Property taxes
Learn about semi-variable costs
Sometimes determining whether a cost is fixed or variable is more complicated.
There is also a category of costs that falls in between, known as semi-variable costs (also known as semi-fixed costs or mixed costs). These are costs composed of a mixture of both fixed and variable components. Costs are fixed for a set level of production or consumption and become variable after this production level is exceeded. If no production occurs, a fixed cost is often still incurred.
The best way to include these costs is to separate out the part that is variable from the part that is fixed. These may include minimum payments or fees for services and products. For the break-even analysis to be as accurate as possible it is important to separate any semi-variable costs into their fixed and variable parts if possible.
Examples of semi-variable costs include:
- Monthly telephone services
- Indirect materials
- Indirect labor
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Break-Even Analysis Explained—How to Find the Break-Even Point
Posted november 2, 2022 by kiara taylor.
Conducting a break-even analysis is a crucial tool for small business owners. If you’re planning on launching a business, writing a business plan , or just exploring a new product, knowing your break-even point can tell you whether or not a product or service is a good idea.
In this guide, we’ll cover what a break-even point is, why it’s critical to calculate, how to calculate it, and additional factors you should consider.
What is the break-even point?
The break-even point is where an asset’s market price equals its original cost. Put another way; the break-even point is when the total revenues of a certain production level equal the total expenses of producing that product. For small business owners, it’s essentially the amount that you need to earn in order to cover your costs.
Why you should know your break-even point
So, why is knowing your break-even point so important? Here are a few important reasons to consider.
Risk comes in various forms , but break-even points can help you understand the viability of certain products before they’re even launched.
For example, before even sending an order to a factory, you can already know how many units you need to sell and what expenses will go into making that product. Understanding this is key whether you’re launching a business for the first time or starting a new product line.
Identify unseen expenses
Running a break-even analysis forces you to outline all potential expenses associated with an initiative. Expenses that you’d otherwise miss without it. Usually, these expenses come from the fixed and variable costs of production. In this process, you can often identify unexpected expenses that you may not have considered before.
Appropriately price your products/services
Because your break-even point concerns the price relationship to your expenses, you can calculate different break-even points based on sold units or different pricing schemes. For example, you may find that your product is unprofitable at a certain price point except at extremely large scales.
If that’s the case, you can explore higher price points. However, it’s important that you do not do this in isolation. Instead, use this exercise to understand potential pricing options and begin testing them with your target customers .
Prepare for funding
If you’re seeking funding for your business, this information is often expected or required by lenders and investors . It helps them gauge the viability of your idea and determine what level of funding is appropriate. For you as a business owner, it can help you determine how much funding you think you’ll need and even identify how you’ll use those funds.
How to calculate the break-even point
To calculate your break-even point, you’ll need to know the following:
- Fixed costs: Expenses that remain consistent no matter your sales volume.
- Variable costs: Expenses that change depending on your sales/production volume.
- Sales price: The price that you intend to sell the product/service for.
Break-even point formula
The break-even point is calculated using your fixed costs and your contribution margin. The contribution margin is the selling price of the product minus the total variable costs. Your selling price is usually the amount you place on any customer invoices.
The contribution margin formula is:
Contribution Margin = Selling Price – Total Variable Costs
Once you have the contribution margin, you then take the total fixed costs per unit and divide those costs by the contribution margin. This will give you the break-even number of units required to offset your costs.
The break-even point formula is:
Break-Even Point = Fixed Costs / Contribution Margin
Break-even point example
Now that you know the formula for calculating your break-even point let’s put it into practice.
Imagine you are the owner of a small paper company and considering adding a new line of paper to your available products. You expect to sell a ream of paper for $5.00.
The variable costs of the ream of the paper include:
- $1.00 for the paper itself
- $0.50 for the packaging of the ream
- $0.50 of costs to package each ream
According to this information, you have $2.00 in variable costs. Using the formula mentioned above, we can calculate the contribution margin for your paper ream:
$5.00 – $2.00 = $3.00
Next, we’ll incorporate fixed costs to determine how many units need to be sold. After holding an office meeting in the conference room, you determine that the following fixed costs are associated with producing reams of paper:
- $50.00 in salaries
- $50.00 in office rent
- $50.00 for monthly shipments from the paper factory
Your total fixed costs come to: $50.00 + $50.00 + $50.00 = $150.00.
Lastly, we’ll calculate the break-even point: $150.00 / $3.00 = 50 units. To break even, you would need to sell 50 reams of paper.
Maximizing your break-even point formulas
You can also utilize this calculation to figure out your break-even point in dollars. This is done by dividing the total fixed costs by the contribution margin ratio. You can figure out your contribution margin ratio by taking the contribution margin per unit and dividing it by the sales price.
Your contribution margin ratio using the data from the above example is:
$3.00 (your contribution margin) / $5.00 (price per one ream of paper) = 60%.
Finally, divide your total fixed costs ($150.00) by your contribution margin ratio (60%) to calculate the break-even point in dollars:
$150.00 / 60% = $250.00 in sales
You can confirm your findings by multiplying your break-even point in units (50) by the sales price ($5.00):
50 x $5.00 = $250.00
What is a standard break-even time period?
The standard break-even period is hard to predict and fully depends on your business. However, once you know your break-even point, you can gauge the time it will take to break even more accurately.
Your break-even period is the amount of time it takes you to sell enough units to break even. This means that the only thing holding back your ability to break even is how fast you sell your units.
The formula to calculate your break-even time period is:
Break-Even Time Period = Break-Even Units / Amount Sold per Period (Period)
If we return to the paper company example, we can estimate what the break-even period is. After reviewing your financials, you learn that the average number of reams you expect to sell daily is 5. Now, take your number of break-even units (50) and divide them by the amount sold in a given period (5):
50 / 5 = 10. Under this analysis, you would break even in approximately 10 days.
However, it’s important to remember that fixed costs, which are an important part of calculating your break-even point, may accumulate faster than you can sell your product. In that case, you’ll need to factor this into your analysis.
How to lower your break-even point
Everyone wants to lower their break-even point because it typically leads to greater profitability at a faster rate. But how do you lower your break-even point? The key thing to remember is that it’s a ratio of your fixed and variable costs. To reduce your break-even point, you’ll need to lower one or both.
One of the most efficient ways to reduce your break-even point is to start by reducing variable costs. Keep in mind that variable costs are associated with each unit. Other fixed costs, those that exist regardless, like the $20-$80 you pay for your employees’ no medical life insurance every month, can be more difficult to eliminate because they are essential.
What you can do with a break-even analysis
Conducting an initial break-even analysis is incredibly useful when starting a business. But, did you know that you can use it on an ongoing basis as part of your management process ? Here are a few key uses you can leverage.
Determine if your prices are correct
A break-even analysis can be used to continuously audit and fine-tune your pricing strategy. If you find sales are missing expectations, you can reference this calculation to easily understand what quantities must be sold if you decide to adjust the price.
Explore current fixed and variable costs
You can also explore how different costs impact your bottom line. At the end of the day, your business needs to know what costs are impacting its ability to generate revenue. A break-even analysis can help you understand whether some products may be costing you more money than their worth. For example, products with low contribution margins or ratios might be too expensive to keep in production.
Narrow down financial scenarios
Finally, you can use your break-even analyses as part of any forecast scenarios that you explore. By changing numbers in your formula, you can test different types of prices and quantities based on perceived consumer interest. This can help inform a larger analysis of your sales, cash, and expenses based on how reasonable your price and volume adjustments are.
Other metrics to consider
Now that you understand break-even points and break-even analysis, you’ll be able to put them to work for your business. Remember, this is just a piece of measuring business performance and there are other valuable metrics you should be tracking. You can do this manually with spreadsheets, leverage budgeting and accounting software, or better explore future performance with LivePlan’s performance tracking and forecasting features .
Whatever option you choose, the important thing is that you are aware of these metrics and actively using them. It will help you better understand the health of your business, make more strategic decisions, and ultimately grow your business.
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5 Easy Steps to Creating a Break-Even Analysis
- What Break-Even is Used For
Gathering Information for Analysis
- Steps to Break-Even Analysis
Analyzing a Break-Even Chart
Break-even is one of those vital numbers that can mean success or failure to a small business. If you are breaking even your income is are equal to your costs. You have no profit or loss at this point. But, above the break-even point, every dollar of sales is pure profit.
How to Use a Break-Even Analysis in Financial Planning
A break-even analysis is important in several different situations:
- As your business plans new products, knowing the break-even point helps you price more efficiently.
- As you plan your overall business cash and profit strategy, break-even can be used to determine profit points for product lines.
- As your business plans for financing, knowing your overall company breakeven point can help make your case for a business loan.
A lender or investor will probably want to see this information in the financial report section of your business plan .
Before you begin your break-even analysis, you'll need some information. Let's say you're dong an analysis for a potential new product. Make a list of all your costs and expenses relating to that product, including facilities, the cost of materials and supplies, machines or equipment, and costs for paying employees to make the product and prepare it to ship.
You'll also need to know two other pieces of information:
- The range of prices you are considering, starting at $0.00
- The range of quantities you estimate being able to sell, starting at none (0)
You will need to separate out fixed costs and variable costs . Fixed costs are those you must pay even if you have no sales (like rent and utilities). Variable costs are those you spend to make and sell and ship products (like raw materials, supplies, and labor).
5 Steps to Creating a Break-Even Analysis
Here are the steps to take to determine break-even:
- Determine variable unit costs: Determine the variable costs of producing one unit of this product. Variable costs are those costs associated with making the product or buying it wholesale. If you are making a product, you will need to know the cost of all the components that go into that product. For example, if you are printing books, your variable unit costs are paper, binding, and glue for one book, and the cost to put one book together.
- Determine fixed costs: Fixed costs are costs to keep your business operating, even if you didn't produce any products. To determine fixed costs, add up the cost of running your factory for one month. These costs would include rent or mortgage, utilities, insurance, salaries of non-production employees, and all other costs. Don't forget the cost to design the product and packaging, make the prototype, and maybe patent your product.
- Determine unit selling price: Determine the unit selling price for your product. This price may change as you see where your break-even point is.
- Determine sales volume and unit price: The break-even point will change as the sales volume for this product and the unit price change.
- Create a spreadsheet: To do a break-even calculation, you will construct or use a spreadsheet then turn the spreadsheet into a graph. The spreadsheet will plot break-even for each level of sales and product price, and it will create a graph showing you break-even for each of these prices and sales volumes.
A simple formula for break-even is:
Break-even quantity = Fixed costs/(Sales price per unit –Variable cost per unit).
This formula is best expressed in a spreadsheet because variable cost changes. The spreadsheet shows you break-even for a range of costs and sales prices.
You can use Excel or another spreadsheet to create a break-even analysis chart. SCORE has an Excel template , or you can use this one form Microsoft . You'll need someone who's familiar with Excel to tweak the spreadsheet to your specific situation.
Now that you have break-even, what do you do with this information? You want to find the highest price you can sell the product at and still make a profit. See what happens when you change either fixed or variable costs to see what happens if you reduce them. Maybe you can increase the volume by finding new markets. What happens when output volume rises or falls. All of these can affect your business profits on this product.
Of course, a break-even analysis isn't created in a vacuum. If you're creating a new product that no one's ever seen before, you have no idea what the volume would be or how soon competitors might pop up. But at least it gives you a way to begin your search for the "best" price for your product.
SCORE.org. " Break-Even Analysis Template ." Accessed Sept. 10, 2020.
Corporate Finance Institute. " Break Even Analysis ." Accessed Sept. 10, 2020.
Harvard Business Review. " A Quick Guide to Breakeven Analysis ." Accessed Sept. 10, 2020.
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Break-Even Analysis – Definition, Formula & Examples
Updated on : Mar 18th, 2021
A break-even analysis is a financial tool which helps a company to determine the stage at which the company, or a new service or a product, will be profitable. In other words, it is a financial calculation for determining the number of products or services a company should sell or provide to cover its costs (particularly fixed costs).
What is a Break-Even Analysis
Break-even is a situation where an organisation is neither making money nor losing money, but all the costs have been covered.
Break-even analysis is useful in studying the relation between the variable cost, fixed cost and revenue. Generally, a company with low fixed costs will have a low break-even point of sale. For example, say Happy Ltd has fixed costs of Rs. 10,000 vs Sad Ltd has fixed costs of Rs. 1,00,000 selling similar products, Happy Ltd will be able to break-even with the sale of lesser products as compared to Sad Ltd.
Components of Break-Even Analysis
Fixed costs Fixed costs are also called overhead costs. These overhead costs occur after the decision to start an economic activity is taken and these costs are directly related to the level of production, but not the quantity of production. Fixed costs include (but are not limited to) interest, taxes, salaries, rent, depreciation costs, labour costs, energy costs etc. These costs are fixed irrespective of the production. In case of no production also the costs must be incurred.
Variable costs Variable costs are costs that will increase or decrease in direct relation to the production volume. These costs include cost of raw material, packaging cost, fuel and other costs that are directly related to the production.
Calculation of Break-Even Analysis
The basic formula for break-even analysis is derived by dividing the total fixed costs of production by the contribution per unit (price per unit less the variable costs).
For an example: Variable costs per unit: Rs. 400 Sale price per unit: Rs. 600 Desired profits: Rs. 4,00,000 Total fixed costs: Rs. 10,00,000 First we need to calculate the break-even point per unit, so we will divide the Rs.10,00,000 of fixed costs by the Rs. 200 which is the contribution per unit (Rs. 600 – Rs. 200). Break-Even Point = Rs. 10,00,000/ Rs. 200 = 5000 units Next, this number of units can be shown in rupees by multiplying the 5,000 units with the selling price of Rs. 600 per unit. We get Break-Even Sales at 5000 units x Rs. 600 = Rs. 30,00,000. (Break-even point in rupees)
Break-even analysis also deals with the contribution margin of a product. The excess between the selling price and total variable costs is known as contribution margin. For an example, if the price of a product is Rs.100, total variable costs are Rs. 60 per product and fixed cost is Rs. 25 per product, the contribution margin of the product is Rs. 40 (Rs. 100 – Rs. 60). This Rs. 40 represents the revenue collected to cover the fixed costs. In the calculation of the contribution margin, fixed costs are not considered.
When is Break-even analysis used
- Starting a new business: To start a new business, a break-even analysis is a must. Not only it helps in deciding whether the idea of starting a new business is viable, but it will force the startup to be realistic about the costs, as well as provide a basis for the pricing strategy.
- Creating a new product: In the case of an existing business, the company should still peform a break-even analysis before launching a new product—particularly if such a product is going to add a significant expenditure.
- Changing the business model: If the company is about to the change the business model, like, switching from wholesale business to retail business, then a break-even analysis must be performed. The costs could change considerably and breakeven analysis will help in setting the selling price.
Breakeven analysis is useful for the following reasons:
- It helps to determine remaining/unused capacity of the company once the breakeven is reached. This will help to show the maximum profit on a particular product/service that can be generated.
- It helps to determine the impact on profit on changing to automation from manual (a fixed cost replaces a variable cost).
- It helps to determine the change in profits if the price of a product is altered.
- It helps to determine the amount of losses that could be sustained if there is a sales downturn.
Additionally, break-even analysis is very useful for knowing the overall ability of a business to generate a profit. In the case of a company whose breakeven point is near to the maximum sales level, this signifies that it is nearly impractical for the business to earn a profit even under the best of circumstances. Therefore, it’s the management responsibility to monitor the breakeven point constantly. This monitoring certainly reduces the breakeven point whenever possible.
Ways to monitor Break-even point
- Pricing analysis: Minimize or eliminate the use of coupons or other price reductions offers, since such promotional strategies increase the breakeven point.
- Technology analysis: Implementing any technology that can enhance the business efficiency, thus increasing capacity with no extra cost.
- Cost analysis: Reviewing all fixed costs constantly to verify if any can be eliminated can surely help. Also, review the total variable costs to see if they can be eliminated. This analysis will increase the margin and reduce the breakeven point.
- Margin analysis: Push sales of the highest-margin (high contribution earning) items and pay close attention to product margins, thus reducing the breakeven point.
- Outsourcing: If an activity consists of a fixed cost, try to outsource such activity (whenever possible), which reduces the breakeven point.
Benefits of Break-even analysis
- Catch missing expenses: When you’re thinking about a new business, it’s very much possible that you may forget about a few expenses. Therefore, a break-even analysis can help you to review all financial commitments to figure out your break-even point. This analysis certainly restricts the number of surprises down the road or atleast prepares a company for them.
- Set revenue targets: Once the break-even analysis is complete, you will get to know how much you need to sell to be profitable. This will help you and your sales team to set more concrete sales goals.
- Make smarter decisions: Entrepreneurs often take decisions in relation to their business based on emotion. Emotion is important i.e. how you feel, though it’s not enough. In order to be a successful entrepreneur, decisions should be based on facts.
- Fund your business: This analysis is a key component in any business plan. It’s generally a requirement if you want outsiders to fund your business. In order to fund your business, you have to prove that your plan is viable. Furthermore, if the analysis looks good, you will be comfortable enough to take the burden of various ways of financing.
- Better pricing: Finding the break-even point will help in pricing the products better. This tool is highly used for providing the best price of a product that can fetch maximum profit without increasing the existing price.
- Cover fixed costs: Doing a break-even analysis helps in covering all fixed cost.
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