How To Calculate Your Market Share and Breakeven Point

Take note of the formulas to calculate market share and breakeven for your business.
How To Calculate Your Market Share and Breakeven Point
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Entrepreneur Staff
This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process.

This guide is a tour of the five basic structures to develop an effective business plan when starting up, launching a new line or integrating a partner to grow.

Although each project is different, everything starts from having an idea and putting it into writing based on five basic points:

• Ideological structure. It includes the name of the company, as well as the Mission, Vision, Values and a description of the competitive advantages of the business.

• Structure of the environment. It is based on an analysis of the strengths and weaknesses of the company, as well as the behavior of the sector in which it operates, market trends, competition and potential customers.

Guide to approximations of percentage of market share

* Source: E Foundation, Macro Plan. Design guide. Mentoring for the entrepreneur.

Once you find which row (1-13) most closely matches the description of your competition, you can see how their market share is doing .

Example: my competitors are "Big", they are "Some" competitors and their products are "Similar" to mine. Therefore, its market share percentage is 0.5% -5%.

• Mechanical structure. Here are the distribution, sales, marketing and advertising strategies, that is, what actions must be taken to achieve the success of the business idea.

To know more: 15 sustainable and ecological business ideas for you

• Financial structure. This point is essential, as it tests –based on calculations and scenario projections– if the idea is viable –speaking in economic terms– and if it will generate an attractive profit margin.

Calculate your breakeven point:
It is a measure that indicates the units that a company must sell to absorb the fixed costs derived from its own operation. This data is relevant to determine the moment in which sales will begin to generate profits for the company.

The breakeven point is calculated with the following formula:

P.eq. = CF
PV -CV

Where:

  • CF = fixed costs of the operation
  • PV: unit selling price
  • CV: unit variable cost

Example:

  • A trading company has the following price and cost structure:
  • Fixed costs: $ 12,000
  • Variable costs per product: $ 4.5
  • Variable Price: $ 9

Therefore, when applying the breakeven formula in this case, the entrepreneur knows that he needs to sell 2,667 units in order not to have a profit or loss.

When the company sells fewer units than its breakeven point, it will make losses, when it sells 2,667 it will not have significant profits, and when it sells more than 2,667 units it will begin to generate profits.

To learn more: What is the difference between Purpose, Mission and Vision?

Note: it is important to mention that the breakeven point can be calculated in units (as in the previous case), but also in pesos that must be sold to reach the breakeven point.

• Human Resources. It helps to define each of the jobs to be filled, and determines the rights and obligations of each of the members of the organization. It does not matter if you are just starting up by yourself, this will be your base to ensure the growth of your company.

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