Why understanding your break-even point can help you save more money.
10 February 2016: The break-even point (BEP) is the moment when profits equal losses. The individual or business doesn’t make money, but doesn’t lose any money either. For businesses, reaching the BEP is the first major step towards profitability.
How do I calculate the BEP?
In order to calculate your BEP, you’ll need to know three key numbers:
- Average per-unit revenue. This is how much money you receive, on average, for every product you sell.
- Average per-unit cost. This is how much it costs you to deliver your product or service.
- Monthly fixed costs. This includes regular running costs such as payroll and other normal expenses.
The BEP can be calculated by the equation, contribution or graphical methods.
Break through the break-even point
Many entrepreneurs have a break-even mindset, meaning that they aim to break even and don’t seek to go further. Break past the BEP with these tips and get out of the repetitive break-even cycle.
Shift your goals
When you prepare for more profits, you’ll need to shift your goals. If you aim to break even, that’s probably what you’re going to achieve. In order to break that mindset and push further, you need to focus your vision on something greater.
Meditate on your financial goals similar to a fitness goal. If you decide to lose weight, are you going to aim to lose 10 kilos or to run a marathon?
Shedding 10 kilos would be a fortunate result of training and competing in a marathon. If you have a narrow view, your most likely outcome would be breaking even at the target.
Similarly, businesses and households often set goals. Recovering from debt is an average goal, but a better goal would be to improve the numbers in your savings account. Shoot for the top and achieve new milestones.
Don’t get comfy
If you want to break free from mediocrity, you’ll need to venture into deeper waters. Focus on being consistently uncomfortable in order to develop new capabilities. If you want to increase your savings and break free from the BEP, you’re going to have to take some risks.
Risks are a part of any financial venture. If you’re expecting a higher return, you’ll need to be prepared to risk more.
Try cutting your habitual expenses
A big tip for trimming your everyday expenses and helping you save more is to discard unused or expired gym or club memberships. Determine ways to cut down on the energy your household produces. Carpooling and using public transport will help you reduce your expenses.
Don't go out as much and begin to cook for yourself. If you follow these tips, you'll find that your habitual spending won't be holding you back from reaching a surplus.
Start paying bills when they come in
One thing that might stop you from moving forward with your savings is late fees. If you pay your bills a few days late because you’re waiting for your monthly pay, you could be charged another $5 or so. The best solution to this problem is to pay your bills immediately.
This way, you’ll avoid paying late fees and you’ll eventually develop your own bill-paying routine.