One of the most critical terms you should know as an entrepreneur is the breakeven point. Of course, we all know what a breakeven point is, don’t we?
What is breakeven point
The breakeven point is that stage in your entrepreneurship when the money you invest and your expenses balance completely against your enterprise’s revenue. This is a stage of no gain–no loss. From this stage, you can hopefully look at an upward moving graph.
How can it be determined?
Your expenses include the following elements
- fixed costs that are independent of the services or products your enterprise offers, such as salaries and rents and other.
- Variable costs that depend on the costs involved in rendering a service or creating a product
Your income includes the sales amount that you will gain from your customer.
When your expenses equal your income your entrepreneurial initiative becomes self-sufficient instead of being dependent on investments to stay alive. It’s hence no surprise that breakeven point is the critical value all your stakeholders and investors would be keen to calculate.
Let’s not get into the calculations right now, but leave you with the relevance of this smart indicator of your entrepreneurial success – determining your breakeven point, how you will achieve it, and when you will achieve it. It can be in terms of the number of products sold, number of customers who avail a service, amount of money your entrepreneurial venture will make in terms of sales, or any other measurable indicator of success.
Watch this space for more such descriptions of critical terms in the entrepreneurial world.