Break-Even point of profitability

Break-Even point is a method for calculating the profitability of a business. Income is calculated as the product quantity and the cost, and the costs are the sum of fixed costs and the product of the variable costs per unit with the amount. Therefore, breaking point is calculated by division of fixed costs and the difference of price and variable costs per unit of production. In following „recipe“ you will see the practical application of this method.

Lately there is a large number of those who offer variety of training services: computer skills, accounting, sales skills, negotiation, NLP … Let’s see what it takes to make one training center to be profitable!

We have created a table in which we follow: number of courses, number of participants, variable costs per participant (working material, catering), fixed costs (space, computers, projector, licenses, salaries of lecturers), the total cost (the sum of the fixed and variable costs) and revenue from courses.

The formula for calculating total cost represents the number of courses x number of participants x VC + FC respectively, i.e.:

= (B2 * B3 * B4) + B6

Income is calculated according to the formula in which we multiply the number of courses with the number of participants and the cost of the course, i.e.:

= B2 * B3 * B5

Finally, profit is the difference between revenue and costs, which are shown in formula:

= B8-B7

When you fill the table for the average 6 students per course you’ll get the following report:

How to calculate the break-even point of profitability? It represents the ratio of fixed costs and the difference of cost and unit variable costs. The resulting amount must be more to share with the number of participants, so we enter the formula:

=(B6/(B5-B4))/B3

For the data presented in this example we calculated break-even point of 3.33. This means that it is necessary to maintain at least 4 courses per month in order to make a profit. It now remains us to “play” with parameters: fixed costs, variable costs and the price of the course while they do not fit in with the number of courses that can realistically be held in a month.

On the basis of this table it is easy to make a chart in which, at the intersection of income and total costs we can see the break-even point of profitability.