Pulling it all together

Your profit is determined by three factors: 1) yield; 2) market price; and 3) production costs.

Profit = (Yield x Market Price) – Production Costs

  Click on the image for an enlarged version.

The graph shows how yield, costs and revenue work together to generate a profit or loss, depending on where your numbers land.

You probably already know that you can calculate your profit or loss per unit by subtracting your production costs from your price:

(Profit [or Loss] = Price – Cost)

But look at this equation again. The key idea is that your costs and your prices have equal power to influence your revenue and profits, either negatively or positively. Notice that the "break-even point" on the graph above is not a single fixed location. It can move left and right or up and down, depending on adjustments you make to your prices (revenue) and/or costs.