owen at owengreaves dot com

Posts Tagged ‘Breakeven Point’

5 Stars for Amber Naslund at Altitude Branding

I was over at altitudebranding.com’s website responding to one of Amber Naslund’s brilliant blog posts, she gets 5 stars from me almost everytime she posts something. I think many of us have rants pent up deep down inside, but we’re not sure what it is or where we should put it. I can’t articulate as well as Amber, but I too share her concern and wish list if you will.

Please read her article called, Will The Business People Please Stand Up! You can read my response there too and I am including it here below as well, why, because I think my response is a good blog post too : )


Hi Amber,

OK, You got me on this one, I know what you are trying to say but lets look at who we are talking to in this environment. Forgive me if I come off ranting.

I am only going to draw from my experiences of being here online since the late 80’s when Gohper and WAIS were the tools of the day, FTP was the strongest tranfer tool ever!

It will appear like I’m tooting my own horn but really I’m not, like you, my hearts desire is that I could share my experiences from the trench building sound I.T. Strategies, showing Blog readers how a traditional ROI is calculated, and show you how to determine your businesses breakeven point, but that’s kind of boring me thinks.

Walking through an I.T. Strategic Plan, the steps you should consider working through to at least set the foundation for that plan, that’s not all that exciting either. You can find the above on my Blog, not in great detail but at least at a high-level approach.

There are literally hundreds of, if not thousands of sites on how to do a proper business plan too.

Everything you mentioned plus mine above are badly needed from a professional perspective, but my experience so far, here in Social Media circles anyway, people are not that serious about how to do those things. This is still a place to escape to after the day job, or even during the day job.

The How to build a good blog, how do I monetize it and make millions, the how do I get 10 million followers and so on seem to be the lions share of Internet users and scammers today. Even I want to learn some of those things.

My point is, right now, I would love to see what you have so brilliantly articulated but the reality is, the circle is still too small. Why? Business owners still don’t fully understand what they have in their hands when it comes to the Internet.

You & I know many of the same great people working hard to change the mindset, we want to educate and arm business owners with the right tools, metrics and perspective to succeed here. The problem is, they still don’t take this platform seriously enough, it’s still recreation.

Sorry but I had to get that off my chest. There’s more but it’s a moot point.

So what’s the answer, I think you & I and host of others must stay the course, continue to fight the battles we can win, do our best to educate the business owners if they’ll listen. This is going to take a little longer than I would like to see, but I know eventually this environment will have to be taken seriously because the shift is well under way.

It’s not that different than trying to save people from going to hell, business is changing rapdily, if you don’t change with it, your out of business.

Owen

Your Break Even Point

breakevenI’m amazed how many business owners don’t know what the break even point is in there business. They can’t figure out why they are going backwards financially.

I have found over the years that most business owners spend most of there time in crisis management, which means they are not doing what’s truly important. They go to bed at night stressed out wondering how they are going to pay the light bill or cover payroll, why, because they allow crisis to control what, when and where they spend there precious time. To compound the issue, they don’t have a good grasp of which indicators they should be watching on a day-to-day basis. These indicators are different for each business but you will find some common denominators which apply to almost every business.

One of the big indicators is the break even point, it’s one of the numbers that can eat your lunch and kiss your girlfriend and have you wondering what the hell just happened. Before you know it you’re putting locks on the doors and you are out of business. How do you figure out what your break even point is, I’ll try to keep it simple.

The Equation:

To figure out your breakeven point, take your fixed costs, divided by your price, minus your variable costs. As an equation it looks like this:

Breakeven Point = Fixed Costs/(Unit Selling Price – Variable Costs)

This calculation will let you know how many units of a product you’ll need to sell to break even. Once you’ve reached that point, you’ve recovered all costs associated with producing your product (both variable and fixed).

Above the breakeven point, every additional unit sold increases profit by the amount of the unit contribution margin, which is defined as the amount each unit contributes to covering fixed costs and increasing profits. As an equation:

Unit Contribution Margin = Sales Price – Variable Costs

You could put this information into a spreadsheet to easily make adjustments as costs change over time, as well as play with different price options and easily calculate the resulting breakeven point. You could use a program such as Excel’s Goal Seek, if you wanted to give yourself a goal of a certain profit, say $1 million, and then work backwards to see how many units you would need to sell to hit that number.

This is one of those times where ignorance is not a defense, you probably should have covered this item in your business plan…what you say, I was supposed to do a business plan too! Sorry I couldn’t help myself.

Knowing this information will help you see a bigger picture so you can spend your time on important issues rather than every crisis that arises.

Now that you know your Break Even Point, what if I told you how to determine exactly how many additional customers it would take to realize a growth objective of $100,000 with your marketing dollars. Have you heard of The Magic Formula? Until next time.