The concept of break even is one of the important numbers a CEO needs to know about his business. Understanding it's importance, and how to calculate it will also crystallize several other concepts. So what does break-even mean? Simply put it is that level of gross sales in a certain time period where achieved margin equals fixed cost. So sell less than this amount and you are losing money, sell more than this amount and you are making money. That sounds like a very important number to know!
So let us learn how we find out what the break even for our own company is. On the surface, it is one of the easiest numbers to calculate. The formula is:
Break-Even = Fixed Cost/Gross Margin %
Very simple isn't it. But do you know how and where to get your fixed cost amount, and do you really know what your gross margin is.
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