Profitability is at the core of any business. While sales might be pouring in, unfortunately, that doesn’t necessarily mean that your print business is turning a profit. Find out what it takes to keep your business running with a print business break-even point analysis.
Knowing the break-even point for your print business should be a strategic part of your business plan. Your break-even point is a useful tool for helping you to manage other aspects of your business, including setting budgets, deciding on a pricing strategy, setting revenue targets, gaining funding, and even mitigating risk.
Keep in mind that conducting a break-even analysis isn’t a one-time event either. It’s a good idea to do a break-even analysis when you’re creating a new product, adding a new sales channel, or making any other kind of changes to your business, as they can all impact costs. Knowing your break-even point can assist in making other business decisions as well, such as knowing when it is better to outsource a project than to produce it in-house. DFS helps print businesses control costs and turn a profit with low minimum quantities, wholesale pricing, and generous margins.
Why is the break-even point so important?
Your break-even point is the point where total revenue equals total costs or expenses. Knowing where your print business breaks even, where there is no profit and also no loss, is an important tool for future business planning. The break-even point calculation can help you prepare a business plan, as well as decide prices, set sales goals, and other functions of operating your business.
How to Determine Your Print Business Break-Even Point
At your break-even point, your business’s revenue equals the fixed and variable costs of operating the business. Reaching the break-even point means that while you aren’t making any money, you also aren’t losing any money, as all the costs associated with your business will have been met. Another way to think about your break-even point is that below this point is a loss and above it is profit. For your business to be profitable, you must first know what your break-even point is, so that you can then surpass it.
While there are a number of ways to calculate your break-even point, one straightforward way to determine your break-even point is through a simple formula: Break-Even Point = Fixed Costs / (Sales Price Per Unit – Variable Costs Per Unit). Fixed costs remain the same, regardless of sales volume, and generally include rent, utilities, and salaries.
Sales price per unit may also be referred to as revenue per unit. Variable costs will change with the number of units produced or sold. For your print business, these variable costs will likely include the materials and direct labor costs.
Knowing your break-even point means that you understand:
- how many units you will need to sell before you make a profit
- how reducing either sales price or volume will impact profitability
- how increasing either sales price or volume can make up for an increase in fixed costs
Remember that the break-even point analysis isn’t a static calculation or a tool that should just be done once and then forgotten about. It’s a tool that you can and should use throughout your business journey to help you stay aware of product profitability. Use it before you launch a new product as well as to help establish long-term business goals. A break-even point analysis may also be invaluable to a business when things change due to unforeseen circumstances, such as rising raw material costs or supply chain shortages.
Why You Need to Know Your Break-Even Point
Without conducting a break-even analysis, it can be nearly impossible to determine when a particular print job makes money. Used as a decision-making tool, the break-even analysis can be an excellent tool for helping identify projects that have a good chance of being profitable as well as determining how much needs to be achieved in sales for a specific product to make a profit.
Knowing your break-even point will benefit your business in a myriad of other ways, including:
Helping to set budgets – Understanding the effects of changes in fixed and variable costs provides you with a solid basis from which to price your products. It also helps monitor and control fixed costs.
Setting revenue targets – Knowing your break-even point can be a great tool for setting goals for your sales team as they will be able to clearly see the results of extra sales on profits.
Mitigating risk – By conducting a break-even analysis on potential new products, you will be able to avoid product lines that aren’t likely to be profitable for you to produce. However, outsourcing could be a way to introduce new products profitably.
Gaining funding – Potential investors will want to know both the potential return on their investments as well as when they might see that return. If you are considering pursuing funding for your business, you will almost certainly need to perform a break-even analysis.
If you know your break-even point, you can calculate what jobs to keep in house and which ones to outsource. DFS can help you sell more, adding zero to your fixed costs. Our experts can help you expand your current printing service with easy access to trusted printing resources, helping you be more productive and grow your bottom line. Contact us today to be matched with a DFS business advisor.
- Knowing your print business break-even point should be a strategic part of your business plan.
- At your break-even point, your business’s revenue equals the fixed and variable costs of operating the business.
- The break-even analysis can be an excellent tool for helping to identify projects that have a good chance of being profitable.
- Break-even analysis is a tool that you can and should use throughout your business journey to help you stay aware of product profitability.
- DFS helps print businesses control costs and turn a profit with low minimum quantities, wholesale pricing, and generous margins.