Running a Profitable Business: Calculating Breakeven

How do you know when you'll make a profit? Jim and Kay Stice explain the ins and outs of breakeven analysis and cost-volume-profit analysis, and what it means for your business.

Introduction

• The basics of breakeven analysis

1. Importance of Analysis

• Importance of breakeven analysis
• Cost-volume-profit (CVP) analysis

2. Types of Costs

• When variable costs become fixed costs
• Breaking down fixed and variable costs
• Fixed and variable cost examples
• Pricing a service to cover costs

3. Contribution Margin and the CVP Equation

• Identifying high contribution margins
• Contribution margin and profitability
• Calculate a company's breakeven point
• McDonald's breakeven point

4. The Breakeven Equation

• When to conduct breakeven analysis
• Breakeven equation and covering costs
• Breakeven equations for an airline
• Breakeven analysis for multiple products

5. Computing Target Net Income

• Importance of total contribution margin
• How to forecast a target profit
• Calculate McDonald's target profit

6. Sensitivity Analysis

• Analyzing a business before making changes
• What-if analysis for multiple scenarios
• Lessons for running a profitable company

Conclusion

• Risks and rewards of fixed costs