What is a Break Even Point? (BEP)
A break even point is the point at which your total expenditure matches your total revenue. It can be used to inform you of how many units (or gamepasses, clothing, DevProducts in terms of Roblox) you need to sell to reach the break even level of output.
A BEP is usually predicted before an event. For example, you might want to see if proceeding with such event would be profitable. Alternatively, it can be done over the duration of a time period (e.g. predicting BEP for the month).
Put pretty simply:
- If you have a BEP of 100 units then:
- If you sell 99 products, you are making a loss
- If you sell 101, you are making a profit
That’s the basics of it, quite simple right?
Margin of Safety
The ‘margin of safety’ is the gap between the current level of output and the break even level of output.
This can be calculated by this formula:
Margin of Safety = actual or budgeted sales - break even sales
Wait, you can calculate the BEP from the margin of safety?!
Yes, you can do this by:
BEP = Units sold - Margin of Safety
Why is this important on Roblox?
As mentioned in the first paragraph, you can use this to calculate your total losses and how much money you need to break even.
Examples of contributors to revenue:
- Dev Products
- In game subscriptions
- Premium payouts
- Merchandise sales
Examples of contributors to expenditure:
- Developer payout
- Game shareholders payout
In reality, your business would collapse. On Roblox, that’s not possible (to some degree). However, before you spend a lot of Robux on trivial items, you need to remember that your game needs to thrive. If aspects relating to the maintaining of your game is neglected, it could lead to several things:
- Lack of updates due to no developer payouts
- Making a loss (expenditure > profits)
- Player flow decreasing (incl. CCUs and unique visitor count)
Calculating your BEP
Your break even point can be calculated in two ways.
Calculating your BEP in terms of units
calculating the number of products you need to sell to break even
BEP in Units (units) = (Fixed Costs) / (Sales Price - Variable Costs)
Fixed Costs are the costs that are consistent the whole way throughout the time period. An example would be fixed developer salaries. Variable costs are costs that can change (obviously). For example, commissioning a developer.
Calculating your BEP in terms of revenue
calculating the amount of Robux you need to earn to break even
BEP in Revenue (R$) = BEP in Units * Sales Price
To calculate this, you MUST calculate the ‘BEP in terms of units’ (above) first.
The sales price is how much you sell the product for.
If you have a gamepass priced at 200 Robux:
|100||100 units sold * 200 R$ selling price = 20,000 R$|
|200||200 units sold * 200 R$ selling price = 40,000 R$|
Displaying it on a graph
Now you’ve learnt all about how to work it out, now it’s time to plot it on a graph to display it in a more visual manner.
Draw & plot your axes and plot your fixed costs on it.
Why is it a horizontal line?
Pretty simply, it’s consistent. It’ll always be the same and won’t change, regardless of units sold. It’s set at a point on the revenue chart and won’t move (unless your costs change).
Plot your total costs.
This will include your variable and fixed costs (hence why it doesn’t start from (0,0) on the graph.
Plot your total revenue.
As this doesn’t include your total costs, you don’t need to start from the fixed costs line. Always start from the bottom when it comes to revenue. You start with nothing, as harsh as it sounds.
Identify your break even point.
It will be where your total costs & revenue intercept each other. This doesn’t include your fixed costs as you haven’t accounted for your variable costs with that line. The fixed costs can be considered a “placeholder”, and it isn’t 100% necessary now.
Profits & Losses
Once you have reached your break even point and begin to exceed it, you make a profit. However, until you reach your BEP, you will be making a loss.
losses includes above and below fixed costs line
What happens if I reduce my expenditure?
Obviously if you reduce your expenditure, your BEP will be lower. This is because you don’t need to sell as many products to match your total costs.
For example, if you paid a developer 50,000 R$ before, but they now only charge 45,000 R$. You only need to sell x products at x price to reach your equal point.
What happens if I increase my expenditure?
If you increase your expenditure, your BEP will be higher. This is because you need to sell more products to match your total costs.
For example, if you paid a developer 50,000 R$ before, but they now charge 55,000 R$. You need to sell x products at x price to reach your equal point.
What happens if I increase my prices?
If you increase your prices, your BEP will be lower. This is because you don’t need to sell as many products to match your total costs due to the higher prices from each item.
For example, if you sold products before at 200 R$/per, but you now sell them at 250 R$/per, you only need to sell x products at x price to reach your equal point.
What happens if I reduce my prices?
If you reduce your prices, your BEP will be higher. This is because you need to sell more products to match your total costs.
For example, if you sold products before at 250 R$/per, but you now sell them at 200 R$/per, you need to sell x products at x price to reach your equal point.
Is a lower BEP better?
Often, yes. It means you’re closer to breaking even and closer to making a profit, hurray! However, beware high prices. Higher prices may discourage sales, and hence, leave you empty pocketed anyways.
From working out your BEP, you can ask yourself these questions:
- What are my prices like? Are they reasonable as to reach my goal in x amount of time?
- When is a reasonable time to reach my break-even? Is it going to take a long time or not as long?
- As a result, is your game & group sustainable?
And finally, did you really need to buy that Dominus?
This was my second tutorial, any feedback is appreciated!