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1. List the variable costs for your company’s product or service, with a cost estimate for each. If you have more than one product or service, choose one of them.
2. Add the variable costs per unit to get the total cost of goods or services sold per unit.
TIP: Your minimum selling price will have to be higher than this number. Next, you’ll calculate fixed costs to find out how much higher it needs to be.
3. List the fixed costs for your company, with estimates for how much each cost will be per month. If some of your fixed costs are one-time purchases, like a computer or equipment, divide the total cost of the purchase by the number of months you expect to use the purchase.
4. Add the fixed monthly costs to get the total fixed costs per month. TIP: Now you know that your minimum selling price has to be high enough to cover these fixed costs too. You’ll calculate your break even point next.
5. Calculate the selling price you would need in order to break even if your company sold 100 units of your product or service, using the steps below.
6. Calculate the number of units you would need to sell in order to break even, using a selling price of your choice. Use the steps below.
a. Choose a selling price that is higher than your total cost of goods or services sold (the amount from question 2 above) but that is different from the selling price from question 5b above. Pick a price you think is reasonable.
b. Subtract the total cost of goods or services sold (the amount from question 2 above) from the selling
price. This is the gross profit per unit.
c. Divide the total monthly fixed costs by the gross profit from 6b above. This tells you how many units you must sell to break even.
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