Do you struggle with picking good price points in your business? You know what I mean – coming up with a price for your services or products that you know will *actually* be profitable??
If that sounds like you, then it’s time to get to know the fixed and variable expenses in your business – and then use a super simple breakeven formula
𝗦𝗼 𝘄𝗵𝗮𝘁 𝗮𝗿𝗲 “𝗳𝗶𝘅𝗲𝗱 𝗲𝘅𝗽𝗲𝗻𝘀𝗲𝘀”?
These are your “overhead costs”, and they don’t change much from month to month. You pay roughly the same amount, no matter how much (or little!) business you do.
Some examples of fixed expenses are:
Rent or lease of office space
Website hosting fees
𝗔𝗻𝗱 𝘄𝗵𝗮𝘁 𝗮𝗿𝗲 “𝘃𝗮𝗿𝗶𝗮𝗯𝗹𝗲 𝗲𝘅𝗽𝗲𝗻𝘀𝗲𝘀”?
These are expenses that are directly tied to your volume of production and/or sales. Therefore, the total amount of these expenses changes depending on your volume.
Some examples of variable expenses are:
Cost of raw materials
Shipping + distribution
Credit card transaction fees
𝗔𝗻𝗱 𝗵𝗼𝘄 𝗱𝗼𝗲𝘀 𝗸𝗻𝗼𝘄𝗶𝗻𝗴 𝘁𝗵𝗶𝘀 𝗵𝗲𝗹𝗽 𝗺𝗲 𝗰𝗵𝗼𝗼𝘀𝗲 𝗮 𝗽𝗿𝗼𝗳𝗶𝘁𝗮𝗯𝗹𝗲 𝗽𝗿𝗶𝗰𝗲 𝗽𝗼𝗶𝗻𝘁?
𝘉𝘦𝘤𝘢𝘶𝘴𝘦 𝘶𝘯𝘵𝘪𝘭 𝘺𝘰𝘶 𝘬𝘯𝘰𝘸 𝘸𝘩𝘢𝘵 𝘺𝘰𝘶’𝘳𝘦 𝘴𝘱𝘦𝘯𝘥𝘪𝘯𝘨, 𝘺𝘰𝘶 𝘸𝘰𝘯’𝘵 𝘬𝘯𝘰𝘸 𝘩𝘰𝘸 𝘵𝘰 𝘮𝘢𝘬𝘦 𝘢 𝘱𝘳𝘰𝘧𝘪𝘵 – !
And once you do, it’s (almost) as easy as 1 + 2 = 3. Just use this formula to find your breakeven point:
𝙁𝙞𝙭𝙚𝙙 𝙘𝙤𝙨𝙩𝙨 / 𝙍𝙚𝙫𝙚𝙣𝙪𝙚 𝙥𝙚𝙧 𝙪𝙣𝙞𝙩 𝙖𝙛𝙩𝙚𝙧 𝙫𝙖𝙧𝙞𝙖𝙗𝙡𝙚 𝙘𝙤𝙨𝙩𝙨 = 𝘽𝙧𝙚𝙖𝙠 𝙚𝙫𝙚𝙣 𝙫𝙤𝙡𝙪𝙢𝙚
As an example, let’s say that you sell clocks
Right now, you sell each clock for $10. Your variable costs (materials, etc.) for each clock is $6. And your fixed costs for the clock store (rent, etc.) is $1,000/ mo.
1,000 / (10 – 6) = 250 clocks you need to sell … just to cover your fixed expenses, not even to make a profit (!)
Does that feel like too many clocks? Just play with the price to find a better number! (Ex: Selling at $15 = just 112 to break even!)
Here is a helpful article to explain variables in more detail
What about you? How do you pick profitable price points in your business? We’d love to hear! ️
… Or maybe you’re still feeling overwhelmed by this process or the whole financial management side of your business? If that’s the case, no worries – this is exactly the kind of stuff we do! ️
Every day we help our clients organize the numbers in their business and turn them into real-world information – like where to reduce expenses and set profitable price points. And we’d love to do the same for you, too!
Contact us at firstname.lastname@example.org or call (352) 432-8104
Kerry Postel – Founder CEO Principal
Abacus Business Solutions
Has Higher National Diploma in Business and Finance, Certified in QuickBooks, Member of American Institute of Bookkeepers, and over 20 years of bookkeeping experience including construction, travel, restaurants, events management, and other various professional services.
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