The Break Even Sales Factor is a very simplified way to find out how much you need to sell in order to turn a profit. The most accurate way to determine this is to use the method discussed under the Contribution Margin topic, but that way takes a lot more work.

To illustrate how this works, pretend I am back in elementary and I bring lunch to school. I have 10 friends that I eat lunch with and we have all agreed to share our treats with each other every day.

One day I have a bag of Goldfish crackers and there are 20 crackers in my bag. I hand out one little cracker to each friend and then there are ten left for me.

However, the next day I have fruit snacks and there are only 8 fruit snacks in my packet, so only 8 of my friends get fruit snacks and I do not get any.

This is how the Break Even Sales Factor works. My friends are all the expenses of my company. The treat is the gross profit of the company (Revenue minus Cost of Goods Sold), and the number of treats left over is the profit I get to eat.

I will go over the equation in the next post.

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