Break-even example

Let’s take a look at the example below to calculate break-even for Bill’s Lemonade Stand:

• Fixed Costs=(Rent, insurance, marketing) $300
• Gross Margin % (Covers cost of lemons, water, sugar) 30% (for every $.10 sale $.07 covers immediate costs)
• Break-Even, (FC)/(GM)%, $300/30% or .30 = $1,000

So how many sales will the lemonade stand have to make to break-even?

Divide the break-even point by the unit cost. In this case the break-even is $1,000 and each cup of lemonade is sold for only $.10. $1,000/$.10 = 10,000

This means it will take 10,000 cups of lemonade per month to break even. This will now equip Bill with the information he needs to be successful in making business decisions. It sounds like Bill may want to raise the price a little.

If you would like to take a more in depth look at calculating your break-even use the link below. You will be able to identify the number of units that it will take to break-even. Units could be the number of products or services you have to sell to break-even. http://www.dinkytown.net/java/BreakEven.html

The TSBDC offers free and confidential one-on-one counseling for existing and start up small businesses. To register for go to www.tsbdc.org.Other contact information - Phone (615) 230-4780 www.volstate.edu/tsbdcThe Tennessee Small Business Development Center Network is funded by the U.S. Small Business Administration and local community donors.