## Assessing your idea with a Break-Even Analysis

A good way to assess the feasibility of a business is to look at the break-even point. This is the point at which you are covering all your cost, but not yet realizing a profit.

Example: Anja makes jewelry as a hobby and would like to see if she could turn this into a part-time business, renting tables at a local craft fair or leasing space at flea markets. Her average selling price per piece is $15.00 and supplies to produce an average piece is $6.75. She calculated that her average monthly cost is $100, this would be for table cost, some travel and other costs related to her hobby, plus she would like to draw $300 a month. This would give her a total of $400 per month in average cost.

**Breakeven Point = Fixed Costs / (Unit Selling Price - Variable Costs)**

Breakeven Point = $400 / ($15.00 - $6.75)

**Breakeven Sales Point = Fixed Costs / (1 - (Variable Costs - Unit Selling Price))**

Breakeven Sales Point = $400 / (1 - ($6.75 - $15.00)

The above assumption can be utilized to calculate the number of units that must be sold in order to break-even as well as the total dollar of sales needed to break-even. Using the formulas explained, the following calculations can be made:

Make changes to the following average cost and tab to the next field to see the changes in your breakeven.

### Or for a service related business, think about it this way:

Bill works for a construction company and has 14 years as a carpenter. He would like to do some "moonlighting" work on the weekends to suppliment his income and possibly see if it might grow into a full time business. Bill thinks that $35 per hour would cover his cost and allow him to take home about $1000 per month.

Bill can see that 16 hours per weekend times 4 weekends is 64 hours. Bill calculates would like to work about 30 hours a month and charge $35 dollars an hour. He needs to rent a small space for storage and will need to get liability insurance. There are a couple of other things, but he thinks $300 per month will cover it.