Business Plans Pro
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How do you calculate the Break-even point of a Service Business?
I am using business plan Pro 2007 and it is giving me a negative monthly Revenue Break Even point even though all the other figures are correct. So, I may have to do it myself.
Note: This is an internet site that ONLY sells advertising – however, dozens of different prices for the advertising.
Important Note: This is for a startup company, so no hard figures are available, I only have projections.
Thanks for your help.
I’m glad to hear that you’re using Business Plan Pro 2007 but sad to hear that you’re having problems with it calculating your Break Even point. One thing that you might try in Business Plan Pro is to reset the default formulas in the Break Even table so that it is pulling the correct data from your Sales Forecast and Profit and Loss to calculate the break even point. You can reset the default formulas by right clicking in the Break Even table and choosing Formula Reset > Table.
If you’re still having problems with it calculating a negative break even point, you might have an unusual forecast like a partial year for the first year in the plan. In that case, you’ll be better served by doing your own Break Even point. It’s usually calculated by taking the following:
Fixed Cost ÷ (1-(Unit variable Costs/Unit Price))
Where:
• Unit Price – The price that you charge per unit. Take into account sales discounts and special offers. For non-unit based businesses, make the per-unit revenue $1 and enter your costs as a percent of a dollar.
• Unit variable cost – The incremental cost of each unit of sale. If you are using a Units-Based Sales Forecast table (for manufacturing and mixed business types), you can project unit costs from the Sales Forecast table. If you are using the basic Sales Forecast table for retail, service and distribution businesses, use a percentage estimate. For example, a retail store running a 50% margin would have a per-unit cost of .5, and a per-unit revenue of 1.
• Fixed costs – Technically, a break-even analysis defines fixed costs as costs that would continue even if you went broke. Instead, you may want to use your regular running fixed costs, including payroll and normal expenses. This will give you a better insight on financial realities.
This information is available online in the HurdleBook at:
http://www.hurdlebook.com/
Here’s a selection of Break Even articles:
http://tinyurl.com/2bdspk
(sorry, I had to make it a TinyURL, Yahoo Answers didn’t like it)
Lastly, we do have a free “Break Even” calculator available if you want to use it instead. You can find that on our www.Bplans.com site at:
http://www.bplans.com/common/calculators/breakeven.cfm
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