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Math help : Confused with how to calculate break-even costs

Xeon

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This is not a troll thread. I was looking at my spreadsheet trying to calculate how many products I need to sell in order to break even on the manufacturing costs, and I'm getting confused.

I tried googling but every article is using different terms, resulting in more confusion.

Here's my numbers:

Total cost of developing 100 products : $1200
Cost price of 1 product : (1200 / 100) = $12
Selling price of 1 product : $30
Unit profit : $30 - $12 = $18

So, to calculate how many products I need to sell to break even, do I use

$1200 / $30 (selling price) = 40 products to break even

OR

$1200 / $18 (profit margin) = 67 products to break even

So which number should I be using? I'm thinking dividing (total product costs) by (unit profit) is correct, because it's the profits that determine whether one earns or make a loss?

Sorry, my math is poor as F*ck! :(
 
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c_morris

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In the simplest form: You spent $1200 (cost). When you sell $1200 (revenue), you are even. Every $ sold after that is net profit.
 

WJK

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This is not a troll thread. I was looking at my spreadsheet trying to calculate how many products I need to sell in order to break even on the manufacturing costs, and I'm getting confused.

I tried googling but every article is using different terms, resulting in more confusion.

Here's my numbers:

Total cost of developing 100 products : $1200
Cost price of 1 product : (1200 / 100) = $12
Selling price of 1 product : $30
Unit profit : $30 - $12 = $18

So, to calculate how many products I need to sell to break even, do I use

$1200 / $30 (selling price) = 40 products to break even

OR

$1200 / $18 (profit margin) = 67 products to break even

So which number should I be using? I'm thinking dividing (total product costs) by (unit profit) is correct, because it's the profits that determine whether one earns or make a loss?

Sorry, my math is poor as F*ck! :(

It depends. Are your development costs in addition to your production costs? Then your jumping off point would be similar to the second calculation. And there are other costs that you haven't included in your math. How about shipping and handling? How about administration/management overhead? How about tax and/or import fees, VAT fees, etc -- especially if you are manufacturing different components or assembling off shore? How about warehouse fees? Are you going to have employees? The list goes on and on. If you are going to run a company you might consider getting really good at math. How will you know if the numbers are right, if you can't work them yourself?
 

Xeon

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It depends. Are your development costs in addition to your production costs? Then your jumping off point would be similar to the second calculation. And there are other costs that you haven't included in your math. How about shipping and handling? How about administration/management overhead? How about tax and/or import fees, VAT fees, etc -- especially if you are manufacturing different components or assembling off shore? How about warehouse fees? Are you going to have employees? The list goes on and on. If you are going to run a company you might consider getting really good at math. How will you know if the numbers are right, if you can't work them yourself?

Thanks, yup, the 2nd calculation should be the one I'm looking at.

The figures here are just a simplified version though. I've factored in all the misc costs (warehouse, shipping, est. customer acquisition cost per product etc.) and built that into the cost price of each product (in this case, $12). Thanks :)
 
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c_morris

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Thanks, yup, the 2nd calculation should be the one I'm looking at.

The figures here are just a simplified version though. I've factored in all the misc costs (warehouse, shipping, est. customer acquisition cost per product etc.) and built that into the cost price of each product (in this case, $12). Thanks :)

Don't make it any more complicated than it needs to be.

The equation is this simple: $ in - $ out = $ profit
 

Xeon

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Don't make it any more complicated than it needs to be.
The equation is this simple: $ in - $ out = $ profit

Actually, $in - $out = gross profit.

However, to calculate net profit, I find that I'm actually earning a lot lesser.
Do businesses look at gross or net profit when determining if they're gaining or making a loss?
 

c_morris

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I've factored in all the misc costs (warehouse, shipping, est. customer acquisition cost per product etc.) and built that into the cost price of each product (in this case, $12). Thanks :)

Sorry. When you said you factored in all of the costs, I assumed you factored in all of the costs.

Sent from my SM-G930W8 using Tapatalk
 
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David Young

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I look at both gross and net. gross profit tells me if there is basic value in the product/ business as this relates the cost the customer is prepared to pay to basic cost of the service/product. Net profit takes into all the other costs and therefore tells me if business model is working. By looking at both you can more easily identify the strength and weakness' in you business.
 

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