To build a right and profitable business, you'll have to know your equivalence point, and that's the importance of this point, which means equals total revenue with total costs, i...
To build a healthy and profitable business, you will have to know your tie point, which is about the equal value of total income with total costs, i.e. the absence of loss or profit, which may help you make some decisions on the price of sale, as well as a sufficient vision for the budget of your sales as well as a good work plan.
- Securities point calculation based on sold units
The sales point shall be calculated from the fixed cost section of each unit, which does not change the number of units to income, which is based on the product price and then presents the variable costs of each unit representing the materials used and the employment, so as to calculate the equivalence point of Break-Even Point for the sold units, namely, the following formula: the equivalence point = costs per unit (revention - variable cost)
- Calculation of the tie point based on sales points
The calculation of the equivalence point in this case depends on fixed costs and margin of contribution, and before the method of obtaining the tie point is clarified, the fixed costs and margin of contribution must first be defined.
- Established costs
These costs, which do not affect the number of sales, are paid irrespective of the high or lower sales, such as: equipment and facilities for the production process as well as any product-making intervention.
- margin of contribution
The contribution margin is 88% of the price of the sale, which includes the profit margin of the fixed costs and the equivalent of 3% of the price of the market.
- Better pricing products.
Knowing the tie point helps you pric your products better and smarter by knowing the price impact on future profit margins.
- Full coverage of fixed costs
The equivalence analysis will help you learn the fixed cost values and cover them.
- Avoiding uncovered financial obligations
- Set sales targets more clearly than you need to follow and market.
- Make valid and effective decisions for your work.
- Avoid the financial risks of the company.
When is the equivalent analysis used? For example, but not limited, we clarify some scenarios through which the analysis of the equivalence point break-Even Point can be used. A new business will be launched if you are about to launch a new business, and you will have to conduct a tie point analysis to achieve the success of your work, where you can analyse the equivalence point from knowing how successful the business idea is and what realistic and appropriate costs are for the idea, as well as an appropriate pricing strategy. Produce a new product if you are in the process of creating a new product, first you must analyse the tie point to determine all the variable costs, determine the price and determine the market acceptability of the new product. Adding a new marketing channel if your marketing plan is successful and you want to open a new marketing channel, you need to know and achieve the tie point so that it does not go wrong with financial pressures and that may endanger the rest of your marketing channels. Thus, it is one of the most important points to know if you have a business or want to launch a new business, so as to ensure that the right decisions are made to keep your business and to plan the good. e cture] (https://trinavo.com/brand-architecture/)