Financial

Know Your Break-Even Point

Enterprises need to know the break-even point.  The break-even point (BEP) is the point at which cost or expenses and revenue are equal: there is no net loss or gain, and one has "broken even".   When revenues exceed costs, then you earn a profit.  When costs exceed revenues, you will lose money.  Being in a deficit position may be required in the short term due to transition costs, market development of maturation of livestock or trees.  It is not sustainable over the long term. 

Knowing your break-even point for the farm and for individual enterprises will help you maintain control.  It will allow you to make an informed choice about pursing a new opportunity or continuing it. 

Understanding your break-even can assist you in:

• establishing prices and signing contracts (how much do I NEED to get per sale, should I turn down that offer?)
• making decisions about on farm investments, such as a new greenhouse or irrigation system (do the increase in variable costs (depreciation, interest and operating expenses justify the increase in yields?)
• identifying opportunities for cost reduction and efficiencies (Can the fixed costs be spread out over a greater number of units?  Can the variable costs be reduced?)

Information on calculating your Break-Even Sale Price:

Breakeven Sale Price   =       Total Fixed Cost         + Variable Cost per Unit
                                        Volume of Production

Information on calculating your Break Even Sales Volume:

Breakeven Sales Volume  =                     Total Fixed Cost             
                                              Selling Price - Variable Cost per Unit

The spreadsheets can be downloaded in Microsoft Excel Format:

Market Garden (407 KB PDF)
Dairy (407 KB PDF)
Livestock (424 KB PDF)
Grain (402 KB PDF)

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