What Is My Sales Target To Break Even This Month?

Why wait for your finance team to tell you whether you’ve made a profit this month? If you have a stable business model, it’s straightforward. With a good finance team behind you, all you need to do is look up the value of your sales.

The number you’re looking for is called break-even. We tell all our clients what theirs is every month, and we can tell you yours too.

What break-even actually means

Sales − costs = zero profit, or break-even.

Break-even is the point at which your sales cover your total costs — the value of sales you must achieve before you make a profit. Every business needs to know this number, because every additional sale above it puts profit in your pocket.

The formula is:

Break-even = total fixed costs ÷ gross profit %

Turning break-even into a sales target

Once we know that figure, we can work out the daily, weekly or monthly sales you need to hit your target profit for the year.

So if you want to buy a house, buy a car or take a holiday, knowing your break-even point lets us establish the sales required — in other words, how hard the business needs to work — to get you the money you need, and set a plan to achieve it. Then we check the sales you’ve made each week, month or quarter to make sure you’re on track.

Where break-even analysis helps most

From a clearly defined break-even position, you can look to increase revenue and cut unnecessary costs. For a new start-up, it tells you whether the proposition is viable at all.

It’s useful when you want to scale up, and just as useful when times are hard, because you can budget for your worst-case scenario and work out how much overhead you would need to cut to stay in business.

It also earns its keep in pricing, setting sales budgets and preparing a business plan. Use it to analyse the critical profit drivers in your business: the number of sales, the average sale price, average production costs and overheads. Knowing the true break-even for each product helps you decide whether to launch a new product, keep selling an existing one, or drop it.

What lenders and investors look for

Potential investors or lenders always want to know the likely return on their money, and when they will see it. They will want to see your break-even calculations and your break-even points set out in your business plan, so they can weigh up the risk and decide whether they’re interested.

The catch

This level of analysis needs really good bookkeeping behind it. You have to properly understand your variable and fixed costs, and make sure each cost sits in the right bucket. Get that wrong and the number you calculate won’t mean anything.

Managing profit and loss well is one of the most important tools for growth, and break-even applies to every business, large or small, in any industry. Profitability is the goal — but you have to break even first.

To find out more, why not contact us or book a meeting?