From the course: Finance for Non-Financial Managers

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How to calculate your break-even point

How to calculate your break-even point

From the course: Finance for Non-Financial Managers

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How to calculate your break-even point

- Let's consider a really simple example to illustrate a very complex point. It's summertime and I'm going into the snow cone business. You know, finely crushed ice that is flavored. Perfect for those hot summer days. Can this business be profitable? Well, that depends on how many customers you can expect and we can compute the number of customers, we will need through a careful analysis of our fixed and variables costs. Can we be profitable given a market price of $2 per snow cone? That's a tough question to answer and it's also the wrong question to ask. But if we're determined to remain a not numbers person our entire life, those are the types of questions we will be asking. The wrong questions. The right question to ask is how many people must come for us to be profitable? Clearly, if a million people stop by and buy snow cones, we will be profitable. If only 10 people stop by, then we will have a problem.…

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