Breakeven = Fixed Costs /Gross Profit Margin
So if I had to pay $20,000 a month in fixed cost whether I sold anything or not, and my gross profit margin (income less direct costs of delivering the product or service) was 40%, then –
Breakeven = Fixed Costs / Gross Profit Margin
Breakeven = $20,000 / .40
Breakeven = $50,000
I have to sell and deliver (and collect on) $50,000 a month, and I make zero. I broke even.
Let’s say I lower my fixed costs to $17,000, and I increase my gross margin to 42% – what is my breakeven now?