break even analysis for multiple products excel template

Variable costs are costs that fluctuate depending on the volume of products produced. The costs are “fixed” and will have to be paid whether the business fails or succeeds.Įxamples include rent, salaries, insurance, and property taxes. Fixed Costsįixed costs are costs that will not change based on the output of sales or services. Break-even analysis looks at the fixed costs a business has relative to the profit earned on each sale of a product or service. You can run a break-even analysis to determine the quantity necessary to break even or you can determine the dollars and sales required.įixed costs, variable costs, and contribution marginįirst, we will need to cover some must-know terms.

Do you want to know the BEP in dollars?.Do you want to know the BEP in quantity?.BREAK-EVEN ANALYSIS FORMULA AND CALCULATIONĪ break-even analysis can be conducted two ways depending on what you are interested in finding out: The break-even analysis formula will determine what level of output will achieve this. Profit is achieved when revenues exceed the fixed and variable costs. Just because a business earns revenues through sales does not mean that the business is profitable. The revenues generated will offset the associated costs of producing and selling the product.

When it comes to break-even analysis, it is important to distinguish the difference between revenue and profits.

Is pursuing this product or service worth it from a business standpoint?.

What revenue targets do we need to set?.

Is the level of sales needed to profit plausible?.

Break-even analysis can reveal the following about a product: Simply put, the analysis is used when a business is considering introducing something new and wants to know what profitability will look like. WHEN TO USE BREAK-EVEN ANALYSISīreak-even analysis is used when starting a new business, launching a new product or service, or adding a new sales channel to the mix. The analysis will reveal the minimum required to avoid losses. When entrepreneurs and businesses conduct a break-even analysis, they want to answer the question, “How many sales/dollars do we need in order to make our money back and become profitable?” Sales above the break-even point will result in profit and sales below the break-even point will result in losses. Break-even analysis is a type of analysis that identifies where a product, service, or business will reach the point of total costs equaling total revenues. The analysis finds the break-even point (BEP) which is the level of units or dollars of revenue required for an endeavor to recover its total costs.Īt the break-even point, there are neither profits nor losses.

Break even analysis for multiple products excel template