What are the limitations of a break-even analysis?
Using break-even analysis in your ecommerce business can come with its own drawbacks. Here’s how to overcome them.
While break-even analysis is a great tool for business owners to have in their financial management repertoire, it does have a few drawbacks. Firstly, calculating your break-even point often assumes that the business will sell all its stock at an unchanged price. However, promotions and discounts can challenge this and influence the break-even point calculated.
For small online businesses launched from home, you may be tempted to wonder how to calculate your break-even point without fixed costs. While you can use just your variable costs, this can be incorrect as there may be costs you incur regardless of how many units you sell like the cost of website maintenance.
Variable costs in your business, like labour or energy, are also constantly changing. As they fluctuate, your contribution per unit will change. Manual entries and bookkeeping can also provide a heightened risk of errors and break-even point miscalculations.
The good news is that you can overcome these with the help of ecommerce accounting software like Xero. Xero’s cloud capabilities along with ecommerce integrations like Shopify and A2X help you to have all of your financial information and sales data in one place, so you can calculate your break-even point in real time.
How to calculate your break-even point: A guide for ecommerce businesses
Our comprehensive guide covers everything you need to know about calculating your break-even point as an ecommerce business owner.
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