What is the break-even point?

By Samantha Garner | May 4, 2019

break even analysis

The break-even point is a critical number for every small business. Yet, many Canadian entrepreneurs don’t know the point at which sales will translate into profit. Let’s break down the break-even analysis and help you easily understand how it’s calculated.

Why is break-even important?

The break-even point is critical for entrepreneurs, because any money coming in over and above this number is profit! As well, knowing the break-even point can help an entrepreneur determine how much of an increase in sales is required to cover an increase in costs, and may be used when deciding whether to launch a new product.

How to calculate the break-even point

Break-even can be calculated using this formula:

Total Fixed Costs ÷ (Unit Price – Unit Variable Cost)

                                  (also known as contribution margin per unit)

To use this formula, the price of the product or service, per unit, should be known. Entrepreneurs will also need to know the variable cost, per unit, of the product. For example, variable costs for a shoe manufacturer could be the cost of the materials in each pair like leather, laces as well as that portion of labour that it takes to build each pair.

Next, subtract the variable cost per unit from the selling price per unit, to get the bottom part of the formula — the contribution margin per unit.

The top portion of the formula is total fixed operating expenses, things like a business’ rent, salaries not associated with manufacturing, utilities and so on.

For example, let’s say the selling price of an average bouquet at Jill and Lauren’s flower shop is $25. The variable cost of a bouquet, including materials and labour wages, is $5.00 per bouquet.

To figure out the contribution margin per unit, they subtract the variable cost per unit from the sales price. So, $25.00 – $5.00 = $20.00.

Let’s say the fixed costs of Jill and Lauren’s flower shop amount to $10,000. Now that they have all of our numbers, they can plug them into the formula to determine the break-even point, or the number of bouquets they’ll need to sell to cover their costs.

     $10,000                  =                      $10,000          =          500 bouquets
($25.00 – $5.00)                                      $20

Other analyses can be conducted with this knowledge. For example, product-focused businesses can take that number and divide it by the number of days they work per year to figure out how much they’ll need to sell each day to break even.

The break-even point in sales dollars can be determined by multiplying the break-even point in units by the selling price. This will give the entrepreneur the point where total sales equals total costs, in dollars.

For more insight into the break-even point and more, check out our online small business training – comprehensive but designed to fit around your busy schedule!

 

Share this post:

Topics: Entrepreneurial Inspiration, Entrepreneurship News, GoForth Institute News, GoForth Institute Small Business Training, Small Business Tips and Advice | No Comments »

What’s the most important entrepreneurship skill?

By Samantha Garner | April 27, 2019

small-business-planning

Our small business training was created after surveying 200 uber-successful Canadian entrepreneurs. These entrepreneurs were asked what business skills they believed made the difference between success and failure for them.

Today, we’re sharing some of the most vital skills entrepreneurs need to know, and which ones GoForth entrepreneurs were surprised they didn’t know.

Branding

This is the importance of developing a small business brand, including brand experience, identity, image, pillars, equity and delivery. Brand pillars are the most important values and characteristics of your small business that you want to communicate in your branding. The brand experience is strategically developed to provoke thoughts, interact with, and persuade people to take action. Make sure your client’s brand experience is consistently positive!

Read more about brand experience.

How to build a financial plan

Most entrepreneurs don’t spend enough time understanding the numbers in their business — but the lead entrepreneur really should know the numbers inside and out. If you’re easily stumped by simple questions about profit, costs, or break-even, then others will lose confidence in your ability as an entrepreneur. Investigating financial feasibility before you start your business and while your business is running will help you tweak your business model canvas, which will raise your confidence that you’ll run a profitable company.

Customer experience

Customer experience (CX) is the sum of all experiences a client has with your business, either during one transaction or over the lifetime of your relationship. Research shows that customers do business with companies they like, so the more positive experiences a customer has with your business, the more they’ll continue to do business with you. To define your customer experience, it’s important that you know what your customers want and need. Refer back to our email about researching your customers to start the process today!

Read more about CX.

How to manage a small business

Successful leaders are teachers, learners and visionaries. Your employees will look up to you for motivation, guidance and also as a model for their own performance. In order to lead effectively, you should consider your business and its staff to be like a team. Everything that’s done should focus on strengthening and improving your team. According to Bond Street Newsletter, these five skills are the essential toolkit for effective leadership in a small business: 1) Empathy; 2) Decisiveness; 3) Collaboration; 4) Planning; and 5) Support.

Government compliance

Staying on top of government compliance can greatly improve a business’ odds of success. There are income tax requirements, GST/HST requirements, rules for working with self-employed contractors, and documents and policies required if you become an employer. It’s not all doom and gloom, though. Government compliance can lead to benefits for you as an entrepreneur. For example, there are many tax deductions that self-employed entrepreneurs can make, as well as employees and commissioned sales employees.

The importance of creativity in business

Creativity is the ability to view the world in new ways, to find hidden patterns, to make connections between seemingly unrelated things and to find solutions. This conceptual combination is seen often in the history of some of today’s most unique product innovations. For example, in 1941 George de Mestral, a Swiss engineer, returned home from a trip with his dog, and noticed burrs sticking to the dog’s fur. Like a good engineer, Mestral examined the burrs under a microscope. There, he noted their hundreds of “hooks” that caught on anything with a loop, such as clothing, animal fur, or hair. And with that, the idea for Velcro was created!

What about you? Are there small business skills you wished you knew before starting your entrepreneurship journey? To learn these, plus dozens of other vital small business skills, check out our online small business training!

 

Share this post:

Topics: Entrepreneurial Inspiration, Entrepreneurship News, GoForth Institute News, GoForth Institute Small Business Training, Small Business Tips and Advice | No Comments »

Creating a strong value proposition

By Samantha Garner | April 20, 2019

creating a strong value proposition

What makes your business unique and desirable to your target market? If you’re not sure, you won’t be able to tell your customer why they should do business with you. You need a value proposition.

A value proposition is a concise statement that outlines how your products or services deliver value to your customers, and what makes your business unique. It explains how a product solves a pain point, communicates the specifics of its added benefit and states the reason why it’s better than similar products.

Value proposition examples

The more specific you can make your value proposition, the better. Avoid making generic claims that can apply to any business. Strong value propositions deliver clear promises to the customer, like increased revenue, decreased costs, improved health, greater efficiency, or fewer errors. These are the clearly identifiable things that will actually benefit your customers, and the reasons they’ll be drawn to your business.

Examples of effective value propositions are Wal-Mart’s “Everyday low prices,” Slack’s “Make work life simpler, more pleasant and more productive,” and Shopify’s “One platform with all the ecommerce and point of sale features you need to start, run, and grow your business.” These demonstrate the value and benefits these companies promise to offer.

About the Value Proposition Canvas

Strategyzer.com and Swiss business management theorist Alexander Osterwalder developed the Value Proposition Canvas to help business owners create the perfect value proposition. really looking for.

The VPC is a visual method that helps us to systematically understand what customers want, and to create products and services that perfectly match their needs. It collects information about customer needs and requirements which allows for a more effective design of your products and services. This should lead to sales and profitability and much less time wasted on developing ideas that customers may not care for.

Anyone can think of good and creative business ideas, but it’s a good idea to design value for your customers on paper first. By using the Value Proposition Canvas, you identify customer needs, and products and services to meet those needs, in a visual and structured way.

Share this post:

Topics: GoForth Institute Small Business Training, Small Business Tips and Advice | No Comments »

Should you hire a professional to create your marketing plan?

By Samantha Garner | April 13, 2019

As we love telling entrepreneurs, a well-researched marketing strategy is critical. Without proper marketing planning and consideration, you could end up selling to the wrong group of people, setting your pricing way off-base, or exposing critical flaws that could hinder your small business.

So, can you create this yourself, or should you hire outside help to create your marketing strategy? Alek Mlynek, one of our GoForth Experts, has some advice for small business owners who are wondering about their best marketing strategy. Check out his advice on creating marketing plans here.

Further reading:

Share this post:

Topics: GoForth Institute Small Business Training, Small Business Tips and Advice | No Comments »

Small business blog posts we liked this week

By Samantha Garner | April 6, 2019

small business website

From security concerns to workplace culture lessons, here are some of the business blog posts and articles we’ve enjoyed reading lately. Have any to share? Let us know in the comments!

Share this post:

Topics: Entrepreneurial Inspiration, Entrepreneurship News, Small Business Tips and Advice | No Comments »

« Previous Entries Next Entries »