Break even: how to calculate the break-even point of your digital company

[muskanislam99]

The break-even point of a company, whether digital or traditional, can be easily calculated, although many entrepreneurs are not familiar with the technique. This indicator shows how much revenue your company needs to reach the break-even point, at which point the company covers all its costs and the investments made for its opening, and starts generating profits.

The technique, also known as the break-even point, is exactly what this term means: finding the moment when the digital company's revenues and expenses balance out, where the bills are paid, the company survives without further external investment and, from that point on, can start generating profits for its partners and owners.

Knowing the break even point of your company or website creation agency is important, not only to know when this moment of equilibrium will arrive, but also so that the financial management of your business is complete and you have all the necessary data to create a business plan , strategic planning and good budget planning .

What is break even?
Break even, also known as break even point, is an expression that, translated from the original in English, means breaking point, or equilibrium point. This term is used in the area of ​​financial lithuania mobile phone number management to indicate that moment in which the company manages to cover all its fixed and variable costs, but still has no profit. In other words, the moment in which it reaches the zero point, in which its operation pays for itself and from which it can start to generate profit .

Knowing how to calculate this variable is important so that the entrepreneur, regardless of the sector, knows what the minimum revenue required is for the company to be able to cover its own expenses and for expenses to equal revenue.

What is the importance of the break even or equilibrium point?
In the initial period of a technology company, in its first months or even years of existence, profitability is a factor that is far from reality. Some companies, especially in the digital area, need a long time to recover the initial investments made for their opening and to actually start making a profit.

This is because the initial sales or the service provided by the entrepreneur do not always have enough output to cover the company's operating costs and still generate some form of profit.

This is the period in which the entrepreneur and his partners must make use of the working capital created for the company, since it exists precisely to guarantee its survival during this and other periods in which there are no profits or few profits.

At this point, knowing how to calculate the break even is important so that the entrepreneur and his partners know how much monthly sales they still need to make in order for the company to be fully financially healthy. Reaching the break even is the first goal of a company and on which its very existence depends.

Although the expectation of immediate profits is great, it is illusory. Few entrepreneurs start a business without debt, and even if their business was started without the help of a loan, the costs of starting it were covered by their own pockets and those of their partners.

These investments must also be returned when we think about the real break even point. The company only surpassed this point when even the investments made for its opening were covered.

Of course, you can ignore these investments and just consider the actual cash turnover within the company to calculate the break even.



Monthly break even
In fact, many business owners fail to consider the company's initial costs when calculating the break-even point. This calculation, which only takes into account monthly expenses and revenues, can be quite useful for the company's health when we consider that these results are closer to the company's day-to-day reality.

The calculation, which takes into account the company's survival from month to month, is quite simplified, as follows:

Monthly income: R$ 23 thousand Monthly expenses: R$ 23 thousand Final balance: 0




When your company reaches this zero balance, that is, the monthly expenses are exactly equal to the revenues of the same period, you have reached the break even point. Any result below this represents losses for the company and any result above this represents profit.

How to calculate Break Even
There are several ways to calculate the break even and the one we are going to show you is the one most used by entrepreneurs, as it is the simplest. Let's go step by step:

The first step is to take into account the following variables:
Fixed costs: expenses that are fixed in your business. Those that you will always pay, regardless of production, such as electricity bills and employee payroll, servers, internet, etc., as we said here .

Variable costs: expenses that vary according to the production of your products or provision of your services.

Sales: The sum of all your sales and services.

Contribution margin: This is the cost your company incurs to manufacture each product or provide a specific service. You reach this value by subtracting variable costs from total sales.

Contribution margin ratio: You reach this value by dividing the contribution margin by the value of the company's total gross revenue.