The essential need to know your Break-even Point
Not knowing your break-even point and volume is like an airline pilot flying a 757, and only using half the instruments available in that cockpit. By knowing your break-even point and
volume, you can better position your self for calculating more accurate pricing, bidding, and mark-ups. By finding out for example that your break-even occurs on October 20th (quantity sold also represents a time line), that could affect how you bid for the remainder of the year, since you know each additional dollar of revenue, now adds to the bottom line.
The green area represents the profit, while the red area
represents the loss. The flat line is fixed costs like rent,
insurance, professional fees, utilities, etc.. The TC line is total costs, which includes direct costs (labor & material), & variable costs like supplies, maintenance, advertising, fuel, bank charges, etc..
Some companies, use break-even analysis to even
calculate their break-even point by the month, week, day, hour,
and product line. Companies that don't know their break-even
point and volume, are merely guessing, and guessing in
business is gambling.
