E-commerce is not just any simple game. It has different sides, which can either be an advantage for your business or harm it drastically. Once you enter it, you must understand how things occur within it and what causes them to exist. If you truly seek positive outcomes, you must learn how to be flexible and ready 24/7.
Dealing with business means dealing with different risks. You cannot just get something you want overnight. You must work hard for it. Knowing how to choose the right risks to take in this field can be your weapon in topping your own chosen field. For you to achieve your set of goals, there are important decisions which you have to take. One thing you could do to lessen getting beaten with such risks is through making a break-even analysis.
What is Break-Even Analysis?
A break-even analysis is one useful tool for businesses in determining their company’s profit. It is a financial calculation that companies could use to determine what measures they should do to cover the whole production cost they’ve made. Break even analysis is commonly used on stock and trading options to incorporate budgeting for various marketing projects. An example of break even analysis involves analyzing how many units of their specific selling product model or service rendered should be sold to their target market to make their company gain a profit.
Break-even analysis is like a company’s personal guide. A break even point can directly tell you how many sales it will take for you to pay the cost of doing your business without having a lot of troubles. The break even point is also considered a measure of the margin of safety. It is like a compass that can help you know which direction should you take in order to not get lost along your journey.
Why Do Businesses Need to Do Break-Even Analysis?
Doing break-even analysis sounds like a lot of work-well, it really is. But, one thing you should understand about the world of e-commerce is that every sweat you break has its own sweet fruit. It may tire you at first, but as soon as you know its value and how it can help your business grow, you will eventually fall for it.
Below are is a list we’ve made to give you more reasons to start mastering the art of doing a break-even analysis for your next business venture.
1. Price Wisely
Pricing is amongt the most critical part of selling products. You have to understand how to price your products and services offered appropriately. A break-even analysis helps you identify how to set prices that are right and fair for your target audience. This part is important because it will identify how your audience will respond to your marketing strategy, whether they will buy your products or not. You cannot just set prices and make judgments on how to sell your products without making deep analyses first. A break even point analysis not only gives you sufficient information on what pricing strategy you should use but most importantly helps you keep up with the wants and needs of your market.
Image taken from Wooddy
2. Limit Harm
One good thing about break-even analysis is that it can give you security. Performing a break-even analysis every time you make business plans helps reduce financial risks by showing you when to avoid a business idea presented to you. It has the ability to serve as a guide you can use to avoid failures and limit the financial toll that terrible decision-making can affect on your business. A break even point analysis helps you become more realistic about all potential outcomes a single decision can make.
3. Set Targets
Setting long-term and short-term goals are easier if you have reliable data you can rely on. Break-even analysis specifically helps you know how much you need to sell on your market to make a profit. This plays an important role in helping you set specific sales goals within a specific span of time. A break even point gives you the information you will need in order to formulate a plan for your marketing strategy. When you already have a clear number of products you want to release in the market, performing your formulated plan will be much easier to follow through.
Image taken from Datable Services
4. Build Funds
A break-even analysis is one key component in any business plan made. It is a requirement which businesses must learn in order to attract sales as well as investors on funding your business. When making business proposals, you have to make sure that everything you are presenting is true and 100% reliable. You have to prove to them that your plan is feasible and will surely work. Making a break even point analysis can help you a lot with that. Providing them with detailed data you’ve made will surely make them fall in love with your plan, and make them join you on your venture.
5. Make Wise Decisions
Decision-making is one crucial element involve in any business. Entrepreneurs tend to make business decisions based on their own emotions. If they knew they feel good about a new opportunity, they tend to just go for it without making thorough analyses of it first. Yes, guts and feelings also play important roles in making decisions, but wise ones need more assurance. Entrepreneurs who managed to make their own names in the e-commerce world didn’t just listen to their own emotions. They made thorough research and break even facts too. Besides, it is easier to make wise decisions when you’ve put in the effort into your work and have collected reliable data in front of you.
Image taken from Unlocked Capital
How Do You Compute a Break-Even Analysis?
A break-even analysis isn’t any type of written document. It primarily involves working with numbers and computations. Yes, it involves math, but you don’t have to be scared of it. We’ve provided below the formula to keep you on track and understand it more easily.
The formula for a break-even analysis is:
Break-even quantity = Fixed costs / (Sales price per unit – Variable cost per unit)
- Fixed costs
These are costs that do not change with varying output. This includes salary, the rent, and every building machinery used for production.
- Sales price per unit
This is defined as the selling price (unit selling price) per unit.
- Variable cost per unit
It is the variable costs incurred to create a unit.
When Do You Know You’re Making a Profit?
Now that you already have the formula in getting a break even point for your break-even analysis, it is now the time for you to learn how to interpret the calculations you’ve made. How would you know if you’ve made a profit?
The point at which the total fixed and variable costs equates to the total revenues you’ve made is known as the break even point. At the break even point, a business does not make any profit or a loss. Therefore, the break even point can also be referred to as the business’ “no-profit” or “no-loss point.” This certain part of break-even analysis is essential to business owners and finance managers, for it plays an important role in determining how many specific units (or revenues) are needed by the company to cover fixed and variable marketing expenses.
For a clearer concept of break even point, here’s more for you:
- You gain a Profit when your total Revenue is greater than the sum of the Total Variable and Total Fixed cost.
- You have a break even point when your total Revenue is equal to the sum of Total Variable cost and Total Fixed cost.
- Your business made Loss when the total Revenue is less than the sum of the Total Variable cost and Total Fixed cost.
Perform a Smooth Break-Even Analysis With Us!
Online businesses primarily seek website builders in building an online presence. They are the ones responsible for giving a business owner the chance to showcase his ideas and even his own personality in his chose market field. They help businesses create their own world and connect easily with their target audience. Website builders help businesses sell products and transact in a more convenient way. Specifically in times like this where the pandemic is still present, selling and providing services is easier in the online world.
Image taken from Strikingly
Website builders also play essential roles in performing a smooth break-even analysis for your online business. There are various website builders who offer free break-even analysis template which you can use freely in performing your break-even analysis. And you are definitely lucky because we are one of them!
We in Strikingly want our users to experience a whole new level of website building and online business. With our break-even analysis template, making wise decisions for your business venture has never been easier. You can even personalize it to make it more fun! Just amazing, right? To use this template, simply:
1. Click "File" from the upper left corner.
2. Select "Make a copy".
Image taken from Strikingly
Making wise decisions is important when you have a business. There would be times that deep research must be done in order to provide the right answers to your market’s demand. It is also important that you understand these ideas in order to save you and your whole team from any possible mess.
Performing a break-even analysis will not only give you the result you want to achieve for your business, but most importantly help you understand more what field you are trying to fit yourself in. You cannot just randomly accept opportunities or make immediate actions without taking a deeper study about your venture. You have to understand what is really going on.
For more about website building, chat with us, and let’s start making new opportunities together.