How to Calculate the Per Capita Breakeven Point
Knowing your per capita costs and breakeven point are critical to running a profitable business. These are factors you should consider before launching a new product, setting pricing or putting together a marketing campaign. When calculated properly, you will know how many sales you need to make to break even and how much revenue each sale should bring in.
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Instructions
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Determine the total cost of your products or services, including production, salaries and other fixed expenses.
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Define what a unit of sales is for your type of business. An attorney may consider one hour’s worth of legal fees as a unit, while a restaurant may define it as one meal for one person.
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Forecast the number of units you expect to sell over the course of one year or during a specific marketing campaign or use actual sales if the number is available.
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Set the price for one unit of goods sold. Consider using an average price per unit if you offer promotional or bulk-buy discounts.
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Calculate your breakeven point by dividing the total cost of goods by the unit price. If you spent $50,000 to manufacture and bring your goods to market, and the cost of one unit of goods is $100, your breakeven point is at 500 units, since 500 x $100 = $50,000.
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Calculate per capita costs by dividing the total cost to bring the goods to market by the number of forecasted or actual sales. If a restaurant spends $100,000 to run a restaurant and sells 11,000 meals at an average cost of $30 per meal, the per capita cost is $9.09, or roughly 30 percent of each meal sold.
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Tips & Warnings
Some businesses, particularly those who sell multiple products or services, may choose to use variable costs only when calculating their per capita breakeven point. Variable costs are those that change in relation to how many goods you produce. These costs could include wholesale price of a product if you are a reseller or retailer; raw materials to produce a product; or increased salaried or hourly workers to manufacture, ship or sell the product. Fixed costs would include salaried personnel not directly related to the products, utilities, insurance and rent.
If you are using forecasted sales to determine your breakeven point, make sure your numbers are achievable and that you have the marketing in place to help reach your goals. If you do not achieve your forecast, it could mean the difference between profit and loss despite your breakeven calculations.
