1. Junior Guru Wannabe
Join Date
Mar 2005
Posts
41

## Break-even Analysis

Hi guys,

I've been all over the forums and I can't seem to figure out a definite way to fill out this Break-even Analysis section of my Business Plan Pro business plan.

The numbers it asks for are:

- Average Per-Unit Revenue
- Average Per-Unit Variable Cost
- Estimated Monthly Fixed Cost

It gets very confusing when trying to fill this information out because you have to add servers every so many customers. This model also doesn't seem to work right with a recurring service like web hosting.

Can anybody give me a good example on how to fill this information out, based on 3 hosting plans, with setup fees, and adding dedicated servers as necessary. I'd assume that you'd want to include cost for supporting the client, etc.

Any help is very much appreciated. Thank you!

2. Newbie
Join Date
Sep 2003
Posts
19
Hello,

To perform a single product breakeven analysis,
(Unit Sale Price - Unit Variable Cost)*Quantity - Fix Cost = 0

If you would like to perform breakeven analysis for 2 or more products, it requires assumption such as sales mix, and it calls bundle analysis.

Email me if you need any help, I can do a complete analysis for you at a reasonable rate.

3. Web Hosting Master
Join Date
May 2005
Posts
1,922
hostingautomagic,

You can simply state that a decision to produce extra volume first depends upon whether the revenue will at least cover variable costs, provide extra funds to help cover fixed costs, and add to profits.

The formulas also aid in understanding the relationship of fixed and variable costs and revenue, because the formulas are merely commonsense expressions in symbols of assured relationships. The formulas are;

Breakeven point = Total Fixed costs/1-variable costs/sales

Sales = Fixed costs + variable costs as % of sales.

4. Web Hosting Master
Join Date
Feb 2004
Posts
736
The concept is pretty easy to understand. Its just that for a service like webhosting its very hard to come up with a 'per unit' cost.

5. Web Hosting Master
Join Date
May 2005
Posts
1,922
Moni-Q,

Right, this is true that it's going very hard to come up with a 'per unit' cost for a service like webhosting, but it might be helpful to get Break-even analysis as Pro business plan, especially when you are going to introduce 3 or 4 hosting plan at same time.
Last edited by etechsupport2; 07-05-2005 at 08:12 AM.

6. Junior Guru Wannabe
Join Date
Mar 2005
Posts
41
Does anybody have any examples?

7. Web Hosting Master
Join Date
Nov 2003
Posts
1,093
How is it difficult to come up with a per unit cost exactly?

It's difficult to explain but it's most definitely possible.

8. Aspiring Evangelist
Join Date
Sep 2003
Posts
438
Why not count your server expense as a fixed recurring cost, so that you don't have to worry about per unit cost?

I can see the following being per unit cost: domain name registration costs, credit card fees, stuff like that.

9. Junior Guru Wannabe
Join Date
Mar 2005
Posts
41
Well what I was doing is only considering my only current expenses which is 2 VPSs and 1 billing license at \$105/month.

So I set \$105/month at my fixed costs, then I divided \$105 / 100 (customers per vps) = \$1.05 variable cost

and then my average per-unit revenue is \$40/month (average hosting plan)

This seems extremely incorrect though, that's why I am looking for help. thanks!

10. Web Hosting Master
Join Date
May 2005
Posts
1,922
I personally think that by direct costing attempts you can eliminate the confusion by avoiding allocation and by presenting cost information that corresponds closely to incremental costs.

You can get the following benefit of direct costs;

1. Cost profit volume relationships required for profit planning are obtained from regular accounting reports.

2. Profit for a period varies with sales rather than the production costs.

11. Web Hosting Master
Join Date
Nov 2003
Posts
1,093
Originally posted by hostingautomagic
Well what I was doing is only considering my only current expenses which is 2 VPSs and 1 billing license at \$105/month.

So I set \$105/month at my fixed costs, then I divided \$105 / 100 (customers per vps) = \$1.05 variable cost

and then my average per-unit revenue is \$40/month (average hosting plan)

This seems extremely incorrect though, that's why I am looking for help. thanks!
It is severely incorrect becausse you aren't including a paycheck for yourself

12. Web Hosting Master
Join Date
May 2005
Posts
1,922
Yes that's incorrect, he should work out on direct costs method or he should get the breakeven point, thereafter he can be able to put the profit (paycheck) for himself.

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