What Sales Value Do I Need To Make A Profit This Month?
How would it feel if every month you knew each month if you were making a profit just by looking up your sales? It is called Break-Even, we can tell you that number & how to calculate it.
SALES – COSTS = ZERO PROFIT or BREAK-EVEN
You might be sitting there thinking “what does data backup have to do with scaling?” As your business grows, the amount of data you need to keep will grow exponentially. For example: customer data, financial records & employee information, so it is critical to you have a secure & reliable systems to backup this data.
Break-Even is the point at which your sales cover your total costs, or the sales that must be achieved to make a profit. Every business needs to know this, because sales you make above it means you’re making more profit. The mathematical formula is:
Break Even = Total Fixed Costs / Gross Profit %
Once we know that we can work out the daily, weekly, or monthly sales you need to make to achieve your target profit this year. So, if you want to buy a house, a car or have a holiday, by knowing the break-even point we can establish the sales, or how hard the business needs to work to get you the money you need & set a plan to achieve that target. Then check if you are on target each week, month or quarter.
From a clearly defined Break-Even position, you can look to increase revenue & reduce unnecessary costs, to make a profit, or in the case of a new start up check if it’s a viable proposition. Enabling a business to manage its profit or loss is very important tool for growth. This concept can be applied in all businesses large or small, & any industry. Profitability is the goal of every business, but to make a profit you need break-even first.
Break-even analysis is a good a basis to tell you where your business is now; It is helpful in times when you want to upscale or hard times, because you can budget for your worst-case scenario & if necessary, know how much overhead you need to cut to stay in business.
Break-even analysis is very helpful in the pricing, setting sales budgets & preparing a business plan. It is a useful tool to analyse critical profit drivers of your business, including the number of sales, average sales price, average production costs, & overheads. Also, an important in a good business plan, it helps in determining the cost structures, & the number of units that need to be sold to cover costs so make a profit.
Knowing the true break-even for each product can help to determine whether or not you should sell a new product, continue to sell or drop an existing product.
Potential investors or lenders always want to know the potential return on their investments, & when they will see that return. They will want to see your break-even calculations & the break-even points in your business plan, to help them determine their risk and decide if they are interested in your opportunity.
The caveat is that you will need really good bookkeeping, properly understand your variable & fixed costs, and make sure they are in the right bucket, to be able to do this level of analysis.
To find out more, why not contact us or book a meeting?
