Computing your break-even point

Break-even is the number of sales at which revenues equal total costs. After you reach break-even, sales start to contribute to profits. To calculate the break-even point for your Web site, subtract your cost of goods(or cost of delivering services) from your revenues, which yields the gross margin:

revenues – cost of goods = gross margin

Now, total the fixed costs(charges that are the same each month, regardless of how much business you do) for your Web site, such as monthly developer’s fees, hosting, charges for your Internet service provider (ISP), overhead, and inhouse labor. Finally, divide your fixed costsby your gross margin. That tells you how many sales you must make to pay for your basic Web expenses.

fixed costs ÷ gross margin = break-even point

Costs of salesare expenses that vary with the amount sold, such as shipping and handling, commissions, or credit card fees. For more accuracy, you can subtract these from your revenues as well. Divide the result into your fixed costs to get the break-even point.

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