Break-even
What do I need to do to break-even?
What does 'break-even' mean?
Break-even is the amount of sales you need at average gross profit (gross profit margin) to cover all your overhead costs.
Why is it important?
Unfortunately, most businesses don't know their gross profit margin, so aren't aware what sales they need to break-even.
Gross profit margin can come from a mixture of products, services, markets or customer groups. If you're unsure what the relevant gross profit margin is, ask us for help.
Should I take on a sales person?
What sales do they need to generate?
This is the difficult decision growing businesses have to make. Should I bring in a sales person, and if so, what do I pay them? What sales do they need to bring in to cover their costs? Let's look at an example. Say you employ a sales person at a salary of £36k and you provide a phone, laptop and vehicle, and they incur costs for travel etc. This could produce the following scenario:
This calculation often shocks business owners! Clearly the figure is reduced if they are office based and have fewer additional costs.
To look at the minimum sales level required, you need to look at the costs divided by the gross profit margin, as there are associated costs with every sale. For example, if your gross profit margin is 33%, minimum sales required per annum is £172,005. However if your gross profit margin is lower, say nearer 20%, the figure rises to £286,675.
Overall, it is often a surprise how much extra sales you need to bring in!
We can model these scenarios in your cashflow tool, such as Fluidly. Ask us if you'd like help with this.