Recently, I was just going through some documents. I saw something which caught my eyes. It was a word I never heard before (or maybe heard and forgot). Quickly a question came up.
What is this break-even point?
Let’s take a transaction example:
- You bought goods for $90 - purchase
- You sold goods for $100 - sale
- You also paid $5 - miscellaneous cost such as tax, transport etc
Here, investment is $90 + $5 = $95 Profit per transaction is $5
Break even point is where you have recovered your investments and made zero profit.
After this point your actual revenue starts.
Now, how many iterations (let’s say X) one need to perform in order to recover that initial investment of $95 with $5 profit each time?
Here, it’s simple 19 iterations. ($5 multiply by X = $95)
In this example, after 19 succesful iterations, one will reach to break-even point.
It's important to understand these things along with knowing how to cook an omelette.
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