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Break-even analysis is a tool used to analyze the profitability of a business. It is used to assess whether a business is making a profit or a loss. It is a vital tool for business owners and managers to make informed decisions about their products, services, and operations.
Performing a break-even analysis in Google Sheets is a great way to quickly and easily analyze your business’s profitability. Google Sheets makes the process straightforward and easy to understand, allowing you to quickly create a model to evaluate your business’s performance. Google Sheets also makes it easy to share the results with other stakeholders, allowing you to take a collaborative approach to decision making.
Break-even analysis is an important tool for business owners and managers to make informed decisions about their operations. By performing break-even analysis in Google Sheets, business owners and managers can quickly and easily understand how their business is performing, allowing them to make informed decisions about their products, services, and operations.
Break-even analysis is a calculation that tells you the number of units a business must sell of some product in order to break even, i.e. make a profit of exactly zero dollars.
After this point, additional units sold will result in a positive profit.
To perform break-even analysis, you can use the following simple formula:
Break-Even Point = Fixed Cost / (Selling Price Per Unit – Cost Per Unit)
The following example shows how to use this formula to perform break-even analysis in Google Sheets.
Example: Break-Even Analysis in Google Sheets
Suppose Doug plans on opening a bagel shop.
His fixed costs will include the equipment he needs to buy along with the ingredients for the bagels, which comes to a total of $1,000.
Each bagel will cost $1 to make and he plans to sell them for $5 each.
Suppose we would like to perform break-even analysis to determine how many bagels he must sell to break even.
To do so, we can enter his fixed costs, selling price per unit, and cost per unit in Google Sheets.
We can then type the following formula into cell B5 to calculate the number of units he must sell to break even:
=B1/(B2-B3)
The following screenshot shows how to use this formula in practice:
In order to break even, i.e. achieve a profit of exactly zero dollars, he must sell 250 units.
If we’d like, we can also type the following formulas into the following cells to calculate the total revenue, total cost, and total profit Doug will earn by selling this many units:
- B6: =B5*B2
- B7: =B1+(B5*B3)
- B8: =B6-B7
The following screenshot shows how to use these formulas in practice:
We can see that his total revenue will be $1,250, total cost will be $1,250 and total profit will be $0.
Once we have all these formulas in place, we could also change the selling price per unit in cell B2 to see how various prices affect the number of units he must sell to break even.
For example, suppose we change the selling price per unit to $6:
We can see that the number of units he must sell in order to break even drops to 200.
This should make sense. The higher the selling price per unit, the greater the profit per bagel and the fewer number of bagels he must sell in order to break even.
Feel free to play around with the values in cells B1, B2 and B3 to see how changing different price changes the value for the break even point.
In conclusion, break-even analysis is a useful tool to determine how many units a business must sell to make a profit of exactly zero dollars. This example demonstrated how to perform break-even analysis in Google Sheets by using the break-even point formula and entering in relevant fixed costs, selling prices, and cost per unit values. By playing around with the values in the spreadsheet, it is possible to gain insights into how changing different prices affects the break-even point.