Break-Even Point
I’ve also seen our subject labeled as “break even” (no dash) point. For purposes of this article, I’ll use “break-even” (with a dash) point.
Do You Know Your Break-Even Point?
Chances are, if you’re reading this article, you are someone that has waded into the business realm. You’ve probably also heard the term break-even.
But, do you know your break-even point?
On a personal note, you’ve probably had to deal with your personal break-even point. This is not to be confused with your personal breaking point (ha).
I bet you know the amount of money you need to make every month to cover your personal expenses. You might have health insurance, rent, a mortgage, utilities. And, of course, food and clothing. Most people drive a car and need gas. So, you’ll also likely have car insurance payments, repair and maintenance costs, and the like.
Take everything you pay in a year’s time. Now, divide this number by 12. This is the amount of money you need to take in every month to live.
Business Break-Even Point (What)
Similarly, every business also has a break-even point. There’s a certain amount of money that an organization needs to “realize” every month. The amount of “realized” revenue you need to cover all of your obligations is your break-even point.
But, you’d be surprised to hear that a lot of CEOs don’t readily know their organization’s break-even point. They just drift along hoping they can cover payroll and have enough money to continue operating.
Break-Even Point (Why)
Why do you need to know your break-even point?
Because:
- You’re taking a long road trip in your car. Wouldn’t you want to know how far you could go on a tank of gas?
- You might employ one person or 10,000. Wouldn’t you want to know how much money you need to cover each person’s paycheck?
- Or, how about knowing how much you need to pay all of your vendors who work so hard for you?
Of course you do. You need to know all those things and more.
And, whether you have verbalized it or not, here is another compelling reason:
“28Suppose one of you wants to build a tower. Won’t you first sit down and estimate the cost to see if you have enough money to complete it? 29 For if you lay the foundation and are not able to finish it, everyone who sees it will ridicule you, 30 saying, ‘This person began to build and wasn’t able to finish.’ ” — Luke 14:28-30
In the passage above, just substitute the words “a tower” with the words “an organization” — and you get the point.
God willing, everyone wants to be a part of a going-concern — not something that goes bankrupt.
Needless to say, it’s important to know your organization’s break-even point.
Break-Even Point (How)
How do you calculate your break-even point?
I’m glad you asked. You calculate your break-even point using a break-even model. And, at Blue Elevator®, we affectionately call this the BE Model (Break-Even Model).
Now, when you launched your business, you should have received an instruction manual. And, somewhere in there, you would have received instructions on how to build and use your own custom BE Model.
If you’d like, take some time to find it, and then we’ll continue.
Surely I Jest
Yes, I surely do. You could be the solo-preneur of a start-up. Or, maybe you’re the CEO of a Fortune 500 company. Either way, the BE Model is not something that gets a lot of press.
Consequently, it often goes undone or overlooked.
If you’re ready for the next step, just contact us below. We’d love to hear from you and/or help you get started on building your own BE Model and calculating your break-even point.
Click on this article: The Break-even Model.
DEC
About the Author:
Ken Moll is the Principal and Founder of Blue Elevator®. With professional experience spanning four decades, Ken has a breadth of foundational business knowledge rarely found – making him part of an elite class of professionals. Ken's passion is helping clients of Blue Elevator® get their “business to the next level™.”