Break Even or, in Portuguese, Point of Equilibrium, is an indicator that exposes the occasion, the circumstance, the moment in which a company equates its gains to the costs/investments and, from which, it starts to make a profit.
To explain it better, in an e-commerce company, the entrepreneur makes an initial investment to create a virtual store and keep it running, which will only be returned to his/her pocket after the Break-Even Point is reached. Anything after that is net gain.
Generally, entrepreneurs and e-commerce managers perform (during the planning phase of the online store) a calculation that allows them to know approximately how much they will need to sell and in how much time to reach the break-even point.
CALCULATING BREAK EVEN
About this, auditor Paulo Sérgio Dortas published on a blog of the consultancy Endeavor Brasil a simple formula so that entrepreneurs like you can establish the Break-Even Point of your business, check it out:
Break Even = Fixed Cost / (1 - Variable Costs / Sales)
As an example, let's suppose that entrepreneurs of an online marbles store have a Fixed Cost of R$15.000,00. And, in addition, a Variable Cost of R$3.000,00. And, finally, sales of R$5.000,0. See below how we apply the formula in this context:
- Break Even = BRL 15.000,00 (1 - BRL 3.000,00 / BRL 5.000,00)
- Break Even = BRL 15.000,00 / (0,4)
- Break Even = BRL 37.500,00
Therefore, the online marble store reaches its Break-Even Point when it obtains R$37.500,00 in sales. If, in this case, the store is selling each marble for R$0,20, it will need to sell 187.500 of them (1.875 jars with 100 marbles each) to reach Break-Even, recover the investment and start making a profit.
OTHER METRICS
Remember that this is a simple formula for finding the break-even point. In day-to-day operations, however, managers should keep an eye on other variables such as increased costs resulting from increased sales, the effects of scalability , time periods (monthly, annually), etc.
