Having issues with breakeven equation

breakeven
New answer on Sep 01, 2023
4 Answers
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Anonymous A asked on Sep 17, 2018

Can someone please tell me the different ways to get break even? I researched on the internet and found BE in sales and units but they look like the exact same thing without any differentiation.

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Clara
Expert
Content Creator
replied on Sep 01, 2023
McKinsey | Awarded professor at Master in Management @ IE | MBA at MIT |+180 students coached | Integrated FIT Guide aut

Hello!

Precisely for the high amount of questions (1) asked by my coachees and students and (2) present in this Q&A, I created the “Economic and Financial concepts for MBB interviews”, recently published in PrepLounge’s shop (https://www.preplounge.com/en/shop/prep-guide/economic_and_financial_concepts_for_mbb_interviews).

After +5 years of candidate coaching and university teaching, and after having seen hundreds of cases, I realized that the economic-related knowledge needed to master case interviews is not much, and not complex. However, you need to know where to focus! Hence, I created the guide that I wish I could have had, summarizing the most important economic and financial concepts needed to solve consulting cases, combining key concepts theorical reviews and a hands-on methodology with examples and ad-hoc practice cases.

It focuses on 4 core topics, divided in chapters (each of them ranked in scale of importance, to help you maximize your time in short preparations):

  • Economic concepts: Profitability equation, Break even, Valuation methods (economic, market and asset), Payback period, NPV and IRR, + 3 practice cases to put it all together in a practical way. 
  • Financial concepts: Balance sheet, Income statement/P&L and Performance ratios (based on sales and based on investment), +1 practice case
  • Market structure & pricing: Market types, Perfect competition markets (demand and supply), Willingness to pay, Pricing approaches, Market segmentation and Price elasticity of demand, +1 practice case
  • Marketing and Customer Acquisition: Sales funnel, Key marketing metrics (CAC and CLV) and Churn, +1 practice case

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Anonymous replied on Sep 17, 2018

Hi Anonymous,

I think this would be easier to answer if you provided the example you were stuck on?

Generally breakeven is just the time when:

revenue = cost

To break this down to what works in most cases:

price*annual volume sold*number of years = initial investment + fixed costs*number of years + variable cost*annual volume sold*number of years

Let me know if this doesn't apply to your example! :)

Kay

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Benjamin
Expert
replied on Sep 17, 2018
ex-Manager - Natural and challenging teacher - Taylor case solving, no framework

Hi,

Break even is when the volumes you sell allow you to cover your fixed cost.
Litteraly the fixed cost are payed by the margin you generate on each product sold.
Therefore

Break Even Volume = Fixed costs / (Price - variable costs)

Hope this helps
Best
Benjamin

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Vlad
Expert
replied on Sep 17, 2018
McKinsey / Accenture Alum / Got all BIG3 offers / Harvard Business School

Hi,

Its:

(Price - VC)*Q - FC = 0

Best!

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Clara gave the best answer

Clara

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