How to calculate Break Even Point?
Calculating the break even point helps you understand your business profitability. A break even point analysis lets you know when expenses equal profits. It shows you whether your goals are achievable. This analysis helps you make profitable business decisions and develop effective strategies.
Break even analysis helps your business grow. I’ll show you how to perform this analysis in Microsoft Excel. Follow the steps below to complete your break even calculation.
Outlaying Necessary Business Components
Let’s identify the essential business components for break-even analysis. Every business must understand which elements are critical to its operations, not just those working with technology. These key components allow you to perform an effective break-even calculation.
Start by focusing on the areas that need analysis. In the section marked in black, you’ll find the variables we selected: unit price, units sold, income, cost per unit, variable expenses, fixed expenses, and profit. Each plays a vital role in calculating the break-even point.
We have identified all the key information. We know the unit price, the number of units we need to sell, and the price for each unit. Our fixed expenses are also clear, as shown in the picture below.
Now, click on the column beside income, as it is marked and labeled as number 1, and then multiply the unit price with the quantity of sold units to know the income. This is the same thing I did with the number 2.
You should click on the column beside the variable costs, as it is labeled as number 1, and then multiply the cost per unit with the unit sold, and then press enter.
Tip: You could just click on the column, type in = and use the mouse to click on the column you would like to calculate.
To find out the break even, or if we have made any profit from the business, click on the column beside profit, and type in = income – variable costs – fixed expenses, and then click enter. This is done with the one labeled as number 2.
Tip: You can change the profit by changing the price for each unit.
What if Analysis
This is about making some changes to effectively do the break even analysis.
Click on the Data tab, which is labeled as number 1, and then choose what if analysis, as it is labeled as number 2, and then choose goal seek. This is labeled as number 3, and marked in black as the rest of them.
Tip: Click on the column beside profit before following the step.
You should now set the one labeled as number 1, to be the one that is profit, as in this case is B7, and then you should type in 0 in the field showing in the number 2, and then type in the unit price (B1 in this case) in the one labeled as number 3, and finally click on ok, which is number 4.
You should just click okay. This means that the lowest price for you to sell your product is 37.5, anything less would make loss inevitable.
This is how to calculate Break Even Point in Excel.
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