Calculating Return on Investment
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Break-even analysis
Break-even analysis is useful when an investment
you’re considering will enable you to sell something
new or sell more of something you already offer. It
tells you how much (or how much more) you need to
sell in order to pay for the fi xed investment—in other
words, at what point you will break even. With that
information in hand, you can look at market demand
and competitors’ market shares to determine whether
selling that much is realistic.
First let’s put the goal in more precise terms. We’re
trying to determine the volume at which the incre-
mental contribution from a product line equals the
total cost of your investment. “Contribution” in this
context means the revenue you get from each ...