As I write this excerpt, I am listening to Summon the Heroes” by John Williams. I hear the powerful call to arms, the swelling of the music that inspires strength and courage as the soldiers march into battle.         Reminds me a little of owning a business. In the beginning, there is such bravado to bring new life to the world around you, make a change with your product or service. How does a business maintain that momentum? They know the deal Right From the Start!

Whether you are a business that provides a product or a service, it is imperative to know the costs associated with your offerings. Every time you send a person or product out the door, do you know the impact it has on your financials? Now, we are not going to talk about your Profit and Loss in this article, as that is more like a 30,000 foot view. We are going to get on the ground, eye level with our what we make or offer and ask “What do you really cost me?” The simple answer for a product would be that I paid X, Y and Z for the components of this widget so the cost must equal X + Y + Z. That if the cost of my widget is 50.00 and I sell it for 100.00, then I am sitting pretty. I wish!

Now, I am not putting myself out there as a business analyst, but I know enough to say that X + Y + Z is not the cost of my widget. What about all of the monies I spent on just coming up with that first widget: engineering, machining, labor, payroll taxes, and any other capital expenditures and improvements to make just the first one. How many widgets must I sell to make up for my costs to date? Ah, that, my friend is something that should be asked from the beginning. That is part of the business case as to whether or not your company can even get to that break-even amount.

So, to help you with the start of your journey to self evaluation, I am going to give you a leg up with some terminology and a formula. Being a service based business, I have other start up costs and costs to maintain staff in order to produce my income. That discussion will also be saved for another day. Let me know if you need some help analyzing your costs or share your story of your first product or service. We’d love to hear more about YOU!

To calculate your break even point:

Q= Break-Even Point

Fc= Fixed Costs

Vc= Variable Costs

Up= Unit Price