The essential information on your fixed costs paired with the calculation of your variable costs will enable you to price your products and services with the accuracy and precision required to maximize your profits. The Break Even Point, or as others will define it, the no-profit, no-loss point or zero profit point, is the point where the total revenue equals to the total costs, both fixed and variable. The Break Even Point is used to calculate the Target Operating Income; total revenue equals total cost.
The BusinessDictionary.com technically defines variable costs as the costs that vary directly with the level of output or sales revenue of a company. Owners must follow these variable costs closely as each and every high variable cost will significantly affect pricing and profits. Some very important business decisions are made considering these costs. It is important to have a full understanding of your fixed costs; set crystal clear numbers for rent and depreciation, as well as sales, production, delivery, and servicing. Know your fixed costs by product. If needed, work with your accountant. If you have not completed a fixed costs analysis, it is highly recommended to complete that with urgency.
In this global economy of sharing data quickly and extensively, businesses are now focusing on using fewer resources to obtain the same results. It is a business imperative in today’s competitive environment. There is a surprisingly little understanding of how fixed costs can be judiciously and effectively turned into variable costs and for that matter, what the effects are on businesses, consumers, as well as the overall economy. Not to mention the huge impact on your own personal economy. The never before available technologies that produced the data sharing economy are turning fixed costs into variable costs across businesses of all sizes, catapulting the use of outsourcing, partnering, and business infrastructure service companies into the forefront of business solutions and profits. As a result, a reduced need for capital provides businesses the ability to scale down their investments which in return easily reduces some business risks. Small businesses are reducing business infrastructure but at the same time enjoy big businesses’ services. It is truly the best of both worlds. Today’s ways of contacting business partners and suppliers are turning their human capital fixed costs into variable costs, as well in areas where it makes sense.