Watch and use your break even point

The break even point is that moment in time when your income equals your expenses. Once you exceed that point you are said to be making a profit.  If your income is higher than your expenses – that’s a profit. If your expenses are higher than your income – that’s a loss.

Knowing your break even point is absolutely vital, because you must always be aware how much it is costing you to produce the products or deliver the services in your business.  If your business is unable to meet its day to day costs plus financially “support you”, you are not breaking even.  Your system should be able to highlight at any time the total number of sales you are making, their value and the cost of generating those sales.  It is only then that you will be able to find out what level of sales you need to achieve to cover expenses and how many customers you need to sell to, to meet your sales targets.

If you can’t reach the required income level, you may have to look at how to reduce your expenditure.  Make sure you fully understand what break even is all about.  It is in fact, a powerful business tool that helps you make decisions about your marketing, go forward strategy, expansion, staff and prices to name a few.