How to use Break Even Analysis Excel?

A break-even analysis will help you to determine your break-even point. Ideally, this technique is conducted before you start a business. In business, it crucial that you know when you will break-even to set your expectation. This context will further elaborate the basics of break even analysis excel and how to use it.

How to Use Breakeven Analysis

Break-even analysis can also be used in daily operations and planning.

• Pricing Strategy - Using break-even charts, you will be able to gauge the impact of changes in selling prices on sales volume and profitability.
• Monitor and Control Cost – Break-even set cost control points.
• Set Budgets – Break-even points determine the effects of changes in fixed and variable costs.
• Planning - Break-even analysis allows you to set long-term goals. If you want to expand your business in a larger space, you should consider increasing your sales to cover increased rent or fixed costs.
• Goals - Knowing how many units you need to sell to break even could serve as a powerful motivational tool. Basically, you don’t get to business just to break-even, you want profit.

What is the break-even formula?
 
There are two basic formulas in calculating break-even point, the number of units of product sold or sales in dollar.

• Break-Even Point (Units) = Fixed Cost / Revenue per Unit – Variable Cost per Unit)
• Break-Even Point (Sales Dollar) = Fixed Costs / Contribution Margin

To understand it further, let’s get a better sense of what these components mean.

Fixed Costs – These are the typical business costs that are not affected by the number of units sold. Examples of these costs include rent, depreciation, advertising, etc.

Contribution Margin – It is calculated by subtracting the item’s variable costs from the selling price. Contribution margin is being used to cover fixed costs.

Profit – Once sales equal the fixed and variable costs, you then have reach break-even point. Any sales beyond that point form part of net profit.

Is there an available template I could utilize?

Though break-even point is quite simple to calculate, a predefined template would be a lot helpful. The break even analysis Excel templates are typically included in most templates like manufacturing, merchandising, eCommerce, and other similar industries.

Conclusion: Break-even set your expectation

Break-even analysis neither result in profit nor loss. Instead, it indicates the number of units required to be sold to cover fixed and variable costs. Break-even analysis sets your expectation and allows you to make changes in any component necessary to hit break-even on the desired time frame.