One of your first steps in creating the financials for your business development strategy is to determine what your break even number is. I know. It’s not the easiest task, but it’s one that will help you sustain and grow your business for the long term.
The Break Even point is the dollar amount you need to sustain your business each month. In other words, in order to keep the lights on and the internet humming, what do you need to earn to survive? Not make a profit. Not grow. Just cover your expenses.
Or another way to consider it – What are the minimum number of clients that you need to maintain (depending on your business model) throughout the year in order to keep the basic bills paid?
Many claim to know this number, but it might surprise you when you work from your actual finances because it’s usually higher than you think.
So here are the steps I encourage you to take:
For example, if you spent $100 during 5 months, $400 during 3 months and $700 during 4 months, you would have spent $4500 for the year and would have an average of $375 in expenses each month.
This means that every month – whether you are spending $100 or $700, you need to keep the $375 number in your mind.
Use the average as your minimum monthly sales goal
What many business owners focus on is maintaining last month’s expense number in mind. This is great during the months that you needed $700 and you were able to garner $700 in services. But somehow, it never works perfectly like that month after month.
I recommend that you keep the $375 number in mind as your first sales milestone every month. It will help you stay motivated during the months you spend only $100. You won’t get lazy and only seek out $100 in sales for the upcoming month. It will ensure during the months that you need to earn $700 that you’ll have some money available to spend – without having to borrow from friends, family or credit.
I hope you were able to take away some valuable ideas from this post. Keep in mind though, the break even number is only one number in outlining a business development strategy. While it doesn’t allow you to generate a profit (yet!), it does give you a target number for you to focus your sales.
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