Break Even Forecast

Handmade leather productHow many items do you need to sell each month to break even? To determine your ‘break-even,’ you’ll need to calculate your “gross profit percentage,” (your profit divided by your selling price). Let’s imagine you were creating pouches. You would calculate your gross profit percentage as follows:

Sales Price (the price you are charging for your pouch) $45
Direct Costs and Labor Costs per pouch $19.25
Gross Profit = $45 – $19.25  (Sales Price minus Direct Costs and Labor Costs) $25.75
Gross Profit Percentage = $25.75 ÷ $45 (Gross Profit divided by Selling Price) 57%

Now that you have your gross profit percentage, you can calculate your “break-even.” Start with your fixed monthly overhead expenses, your rent, insurance, and other regular, set monthly expenses. Divide this number by your profit percentage. For example, if your crafts business has fixed monthly costs of $620 and your profit percentage is 57 percent,  you will need to earn  sales revenue of $1087 a month. At a sales price of $45 per pouch, you would need to sell approximately 24 pouches a month to break even (24 pouches @ $45 a pouch = $1080). Here’s how it breaks down:

Fixed Monthly Overhead Costs $620
Profit Percentage for Leather Pouches 57%
Monthly Break Even [Fixed Monthly Overhead Costs ÷ Profit Percentage] $1087
Number of pouches needed to sell to break even each month. [Monthly Break Even ÷ retail price per pouch] 24

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