The sales volume at which a company makes exactly no money is found using the breakeven analysis method. At this time, the company’s fixed costs must be covered by the entire contribution margin obtained. The business’s survival point is determined by the break-even analysis. Production costs are divided into “variable” (positively correlated to production) and “fixed” categories (not correlated to production). To find the sales volume or value at which the company is in a loss position (the “break-even point”), these costs are compared with sales revenue.
Simply said, break-even analysis is crucial because it compels entrepreneurs to consider profits before taking actions like starting a new company, developing a new product line, switching from online to brick-and-mortar sales, etc. You can also think through the important choices you’ll have to make in these circumstances using the framework offered by Virtual India’s outsourced break-even analysis services in India.
Pricing for your goods and services can be determined with the aid of break-even analysis. You can use it to figure out prices, how much time you have before you break even, and how much material you can buy. From there, it will be simple to determine pricing that will allow you to pay your costs and keep the business running long enough to produce a profit.
▪ Setting goals and making plans:
You may create more accurate, meaningful, and reasonable goals for revenue, profit, and other factors when you are aware of your break-even and profit points. Additionally, long-term planning becomes more precise and simpler.
▪ Tracking expenses
It might be simple to overlook important expenditures and expenses while developing a new product or business. To ensure that nothing is overlooked, you must first consider all the financial requirements and repercussions before conducting a break-even study.
▪ Getting investment and funding:
Every potential investor and lender will want to see your break-even analysis before deciding whether to invest in or lend to you. It is a crucial part of your business strategy.
▪ Assisting in decision-making
It might be challenging to make a decision when determining whether or not to launch a new product or start a new business without considering your emotions. You can evaluate the viability of that decision using a practical, mathematical tool called break-even analysis.