Let's say you can capture sales from competitors by underpricing them, and your price is higher than your cost of goods sold; that means you have positive gross profit. However, all companies have costs unrelated to the direct cost of buying the materials and raw materials to be sold to customers, e.g., rent, salaries, advertising, and so on. Offtoa provides you with a complete check list of such expenses under “other expenses.” Make sure you understand the sales volume you must achieve in order to cover all these other (fixed) expenses, so the company can achieve breakeven. Here is a simple example:

Let's say the annual fixed costs are $150,000. Let's say you sell one product at $200, and it costs you $50 to manufacture (or purchase) it in large quantities. That means you will make gross profit of $150 on each unit sold, and will need to sell 1,000 units to cover your fixed costs and this achieve positive net profit.

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