To breakeven the teacher must complete ten lessons per month. With modern computerized spreadsheets, it’s easy to create a table to show breakeven as well as profit and loss based on the number of units sold (in this case, lessons):
Fixed cost $200
Average revenue per lesson 22
Average cost per lesson 2
Number of Collected Total Unit Profit
Lessons per month Revenues Costs or Loss
1 22 2( $180)
2 44 4( 160)
3 66 6( 140)
4 88 8( 120)
5 110 10 ( 100)
6 132 12 ($180)
7 154 14 ($160)
8 176 16 ($140)
9 198 18 ($120)
10 220 20 0
11 242 22 20
12 264 24 40
13 286 26 60
14 308 28 80
15 330 30 100
16 352 32 120
17 374 34 140
18 396 36 160
19 418 38 180
20 440 40 200
21 462 42 220
22 484 44 240
23 506 46 260
24 528 48 280
25 550 50 300
30 660 60 400
35 770 70 500
40 880 80 600
Another way to view breakeven and profit or loss at different sales volume is with a simple graph, sometimes called a profitgraph as shown below for our mythical piano teacher. The upward sloping line indicates her monthly income, based on the number of lessons completed and the price charged. The amount earned after monthly overhead expense (at $20 per lesson after variable costs) is shown on the vertical axis. The sloping line starts at the –$200 mark (the piano teacher’s monthly fixed costs). If she gave zero lessons in a given month, she would lose $200 for that month. The point where the sloping line meets the horizontal line (ten lessons) is her breakeven point. Any point above the horizontal line represents profit, and points below the line represent loss.
Taken From:HOW TO SUCCEED AS A LIFESTYLE ENTREPRENEUR
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Different entrepreneurs have different financial goals when they start a business. But it’s fair to say no entrepreneur starts a business to lose oney. Although there are lots of mathematical formulations for calculating profit and loss under different scenarios, I’ll only outline the most basic here: breakeven analysis.
Because breakeven depends on fixed costs and because most fixed costs are paid monthly, breakeven is generally calculated on a monthly basis. Most lifestyle businesses are services businesses, which makes the breakeven calculation very easy. Let’s use a piano teacher as an example. The piano teacher would have to know three things to calculate her monthly breakeven point:
1. Her monthly fixed cost (expenses that are the same each month such as rent, telephone, Internet service provider, etc.). For this example, we’ll assume monthly fixed costs of $200.
2. Her average revenue per lesson. For this example, we’ll assume her normal charge is $24, but a few students get discounts, making her average collected revenue per lesson $22.
3. Her average costs per lesson (also known as variable costs). The teacher visits students in their home, so she has automobile expenses for each lesson. Also, a few students pay by credit card, so she must pay the credit card company about 3 percent for each lesson paid for with plastic. Her average costs for each lesson is $2 (variable cost), so her average revenue per lesson, net of expenses per lesson (unit cost) is $20. This $20 goes toward her fixed expenses until they are paid, and the rest, once fixed costs are paid, is income to her.
The formula for breakeven is: Fixed costs / (unit revenue – unit cost). So in this example: Breakeven = 200 / (22 – 2) = 200 / 20 = 10.
Taken From:HOW TO SUCCEED AS A LIFESTYLE ENTREPRENEUR
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Of course, revenue is only part of the story. Let’s use the middle column, the most likely sales outcome, as our basis for projection. Let’s assume that projected monthly expenses for the mythical business are $1,200.
Based on the assumptions made, we’d have a good indication of a go decision, assuming the owner would be happy with an income at this point in the range of $43,000 per year. If the projected expenses were a bit higher, say $1,600 to $1,800, then we’d be in a proceed-with- caution zone; and much higher than that, we’re entering deeper and deeper into the danger zone.
You should at least calculate the monthly revenue you need to break even and be convinced that you can get to breakeven soon (as in before your money runs out) and get beyond breakeven— it’s hoped well beyond it in the not-too-distant future.
Lower Than Expected Expected Better Than Expected
Unit sales 2,408 2,416 2,420
Dollar volume (net) 2,400 4,800 6,000
Monthly gross revenue $44,800
Monthly expenses $41,200
Monthly (pretax) income 443,600
(monthly gross revenue minus monthly expenses)
Annual pretax income ($3,600 × 12) = $43,200
Taken From:HOW TO SUCCEED AS A LIFESTYLE ENTREPRENEUR
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Are you one of the people who are addicted to have online chat whenever the situation is allowing you? If yes, you might have already registered in certain chat rooms as a member. There are a lot of chat rooms available in the internet offer you different facilities and it depends to your specific requirements in choosing the best one.
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It’s true that accurately projecting revenue for a new business is often impossible. It’s not quite as difficult to project expenses, but accuracy is still a challenge. However, it’s not so impossible to test for reasonableness. That is, if you’ve done a modest amount of research as suggested in the previous chapter, you should be able to make some reasonable guesses about expenses and revenue, at least to the extent that you can decide whether your concept has merit as a business. For a relatively straightforward business, projecting expenses is no harder than sitting down and listing your initial (start-up) expenses and your recurring monthly expenses. You will have to look up or otherwise inquire about rates and prices for the services and supplies you’ll need. Add at least 20 percent to your estimates for possible omissions and other unexpected costs.
Projecting revenue is harder but doable within a reasonable range. Say you followed my previous advice and spent four days trying to get orders for your product. Suppose you secured three orders of $350 each and that each unit you sell costs you $50 ($50 cost per unit). It is reasonable to project perhaps three to five orders per week based on that test, resulting in net sales (after unit costs) of about $5,000 per month. It is stretching reasonableness to anticipate sales of $7,500 per month and clearly not reasonable to anticipate sales of $10,000 per month (at least not in the earlystages).
It is often a good idea to base sales projections on three assumptions: lower-than-expected sales, expected or most likely sales level, and better- than-expected sales. In the example of three orders at $300 (net of your cost per unit) over four days, monthly sales projections might look like this:
Taken From:HOW TO SUCCEED AS A LIFESTYLE ENTREPRENEUR
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Have you ever joined a live chat room? Do you know what kind of fun that you can have when you are having a live chat? Well, for those who have ever joined a live chat, you certainly have understood that a live chat can give lots of fun. There are lots of new friends we can meet on a live chat.
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Early in this chapter, I quoted from a marketing text a definition of marketing as those activities that relate an organization successfully
to its environment. Marketing is at the heart of a business. A company of any size must successfully relate to its environment to survive, so if marketing does indeed relate a company to its environment, its importance can’t be overstated.
The traditional tools to do that involve the famous four Ps of marketing: product, price, promotion, and place. There are infinite ways to use these tools by themselves and in combination with one another. Deciding how best to use them and combine them is the challenge that will make or break a business.
Adding to the complexity is the reality of free market competition.
There is always competition, though sometimes it is only indirect. Many entrepreneurs claim otherwise, but they are fooling themselves.
Lifestyle businesses, in fact most smaller businesses, need to
find a niche that they can effectively service, preferably in ways
that few others can match. Mastering a niche is the most effective
way to beat the competition and ultimately have a successful small business.
Taken From:HOW TO SUCCEED AS A LIFESTYLE ENTREPRENEUR
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