Breakeven analysis

Breakeven analysis is a financial calculation that helps businesses determine the point at which their total revenue equals their total expenses, resulting in neither a profit nor a loss. This analysis helps businesses understand their financial standing and make informed decisions about pricing, sales volume, and expenses.

To conduct a breakeven analysis, businesses must first determine their fixed costs (expenses that remain constant regardless of sales volume) and variable costs (expenses that change based on sales volume). The formula for breakeven analysis is as follows:

Breakeven Point (in units) = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit)

Once the breakeven point is calculated, businesses can use this information to set sales goals, adjust pricing, or control expenses in order to achieve profitability. Breakeven analysis is a valuable tool for businesses of all sizes to assess their financial health and make strategic decisions to improve their bottom line.