I found that many people struggle to determine when their investments will become profitable. To figure this out, you need to calculate the Break-Even Point. If you’re having trouble understanding it, this post is for you!
Simple Definition:
Breakeven means ‘Profit = Cost’
How to Calculate the Number of Units: “How many units you have to sell so your profit from these units sold will be equal to the cost you incurred”
Breakeven Units = Fixed Cost/Gross Profit per Unit
or
Breakeven Units = Fixed Cost/(sell price per unit - variable cost per unit)
- How to Calculate Total Target Revenue:
“How much revenue you have to generate so your profit from this revenue will be equal to the cost you incurred”:
Breakeven Revenue = Fixed Cost/Gross Profit Margin Profit
or
Breakeven Revenue = Fixed Cost/ (1 - (Variable Cost per unit/sell price per unit))
As per the Amazon selling scenario, calculating the break-even:
Breakeven Revenue:
Calculate the Breakeven Revenue: “How much revenue you have to generate so your profit from this revenue will be equal to the cost you incurred”:
Fixed costs = VA salary, Amazon subscription, rent, etc.
Total Fixed Cost = $1000
Variable costs = product purchase cost, prep per unit, storage cost, referral fee, FBA fee, etc.
Variable total cost = $6
Sale price per unit = $10
Breakeven Revenue = Fixed Cost/ (1 - (Variable Cost per unit/sell price per unit))
Breakeven Revenue = $1000/ 1 - (6 /10)
Breakeven Revenue = $1000/ 1 - 0.6
Breakeven Revenue = $1000/ 0.4
Breakeven Revenue = $2,500 Revenue to generate to hit breakeven
Breakeven Units:
Calculate the Number of Units: “How many units you have to sell so your profit from these units sold will be equal to the cost you incurred”:
Fixed costs = VA salary, Amazon subscription, rent, etc.
Total Fixed Cost = $1000
Variable costs = product purchase cost, prep per unit, storage cost, referral fee, FBA fee, etc.
Variable total cost = $6
Sale price per unit = $10
Breakeven Units = Fixed Cost/ (Sell Price per Unit - Variable Cost per Unit)
Breakeven Units = $1000/ (10 - 6)
Breakeven Units = 250 units to sell to hit breakeven
Here is what I found—the way to find the break-even points with respect to units and revenue!