1We separate costs
Fixed and variable, with a check of the classification.
Break-even Analysis
Where the business starts to earn. The threshold below which the month closes at a loss, and the safety margin above it.
Sound familiar?It's unclear what sales volume covers the costs, Prices and fixed costs change without coordination, The sales plan isn't tied to the economics
Finance and Economics
How we work
1
2Contribution margin
By product and taking the sales mix into account.
3Scenarios
Several options for price and volume.
4Link to the plan
The safety margin above the threshold and what needs to change to widen it.
Sound familiar?
- It's unclear what sales volume covers the costs.
- Prices and fixed costs change without coordination.
- The sales plan isn't tied to the economics.
What usually lies behind it
The break-even point is the simplest number and the one most often missing. It gets distorted by mistakes in separating fixed and variable costs. Without it you can't assess the risk, the sales pace you need or how much time you have for change.
What you get
The break-even point in units and in money.
The safety margin above it.
A list of the parameters the threshold is most sensitive to.
The cost of waiting
If nothing changes
- 01
The company may grow loss-making volume.
- 02
Discounts will be approved without understanding their cost.
- 03
Planning will stay disconnected from costs.
When you don't need this service
- You already have a financial model: the break-even point is calculated in it.
- The business is in a cash crisis. A payment calendar and crisis measures come first.
How to tell it worked
Knowing the threshold
whether the manager names it right away.
Safety margin
whether it's tracked monthly.
Discount decisions
whether they take the threshold into account.
Questions
Why calculate in both units and money?
Money is more useful for management decisions; units for planning production and sales.
How long does it take?
Usually a few days, if the records are in order.
Is the break-even point a goal?
No, it's a threshold. The goal is the safety margin above it.
Related
Services: Financial Model · Profitability Analysis · Pricing Materials: Unit economics for owners: seven numbers
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