It means a few different things in a few different scenarios.
And today we're going to be talking about what I call an operational Break-Even.
Okay so a Break-Even of the operating of business.
We're not talking about Break-Even in an investment or anything like that.
Breaking-Even of a, of a companies performance okay.
So we're going to do a Break-Even analysis.
And in calculating Break-Even,
we're gonna use the direct costs associated with producing an item.
And what we want to know in calculating Break-Even is,
let's go back to the pizza example.
How many pizzas do I need to sell in a calendar month, for
example, to neither make money nor lose money?
Where is my Break-Even?
And this is vitally important to us, as you can imagine, for a,
for a number of reasons.
If you want to launch a new product.
If you want to open a new a, a new, retail outlet, or
a distribution outlet, or something.
If you wanna start something new.
What are you gonna have to do and is that realistic?
If I do my calculations and
find that I need to sell 25,000 pizzas a month in order to Break-Even,
probably not a very good business idea.
How am I gonna sell 25,000 pizzas a month?
Can I even produce 25,000 pizzas a month?
So, we're gonna do Break-Even.
And in Break-Even, we're gonna look at fixed costs and
variable costs, and we're gonna divide these up.
This can be a subjective division.
A lot of times you can take a cost that's variable, and
throw it into fixed, coz, it's easier that way.
Or, take a cost that's, that's really, by nature, fixed.
But we're gonna make that variable, because it's easier.
Year that way.
What's important is that you've properly identified what your costs are.
You need to know what your costs are.
You're not forgetting a cost.
There's not a cost out there that's hidden,
that's not entering into your formula.
Cuz that's where you're going to get into trouble.
But once you know what your costs are.
Then it's pretty easy to determine.
Do I wanna label this as fixed or variable?
Is this a cost that I just kinda have to pay a flat fee,