Dearer energy raises the break-even point: the increase is measured in turnover to be added, not in euros on the bill
9 October 2026, 09:40
On 8 October the Bank of Italy published its quarterly survey of industrial and service firms with at least 50 employees: more than four in five say that the war in the Middle East and the closure of the Strait of Hormuz have pushed up their energy costs, and among those affected about 45 per cent have adopted no specific strategy.
That increase is not measured on the bill, but by how far it shifts the break-even point.
Energy sits among the fixed costs, the ones that set the loss threshold
The Break Even Point is the minimum turnover that covers all costs: below that threshold the company makes a loss, above it a profit. It is calculated by dividing fixed costs by the contribution margin percentage.
The latter is obtained by deducting variable expenses from the value of production: the cost of goods sold, that is raw materials and goods adjusted for the change in their stocks, and sales commissions. Divided by the value of production, it gives the share of every euro sold that remains to cover fixed costs.
Energy is not among those expenses. The bill does not follow the parts produced or the services sold one by one: it is also paid to keep plant, offices and warehouses running, and between a period of full order books and a weak one it moves far less than sales. That is why it is treated as a fixed or semi-fixed item.
Why the threshold moves more than the bill
If forty cents of margin remain from every euro sold, covering one extra euro of fixed costs requires invoicing two and a half.
An example. A company that builds packaging machines has a turnover of €22 million with a contribution margin of 40 per cent, and this year it is spending €220,000 more on energy than in the previous financial year. The margin does not change, because energy is not part of it, and the break-even point rises by €550,000 of turnover.
Recovered through price, on the other hand, the same increase requires a price list that brings in extra revenue equal to the bill, or slightly more, with the same number of units sold and provided customers accept it. A price increase does not bring any raw material to buy with it, and goes to margin almost in full: the only part left out is what goes in commissions, when agents are paid a percentage of turnover.
How it is measured, before deciding what to do
The calculation takes three steps. The first is to separate fixed items from variable ones, line by line, because the nature of an expense depends on the company and not on the category: work subcontracted to third parties follows volumes in one business and not in another. It is the first step in any cost analysis. The second is to recalculate the break-even point with the energy spending forecast for the current year. The third is to compare it with the expected value of production: the distance, in euros and as a percentage, shows how much room is left before a loss, and the comparison with last year shows how much the increase has reduced it.
The countermeasures recorded by the Bank of Italy act on different parts of the formula. Among the industrial firms that have taken action, about two in five have relied mainly on generating more of their own electricity: they buy fewer kilowatt-hours, but the plant adds depreciation, which is also a fixed cost, and the threshold falls only if the saving on the bill exceeds the annual depreciation charge. In services, again among those that have taken action, about a third have changed supplier or renegotiated their contracts, and have worked on the price of energy, that is, once again on fixed costs. Finally, raising the price list increases the contribution margin percentage, the divisor in the formula, and lowers the threshold for all fixed costs, not just for energy.
The typical mistake is to judge the increase by its share of sales
The most common mistake is to read the increase as a percentage of turnover and conclude that it weighs little. At the packaging machine company it was worth one per cent of sales: at unchanged volumes it took exactly that one per cent off profit, but recovering it by selling more required €550,000 of extra orders. A company that was less than €550,000 above its old break-even point ended up making a loss.
The second mistake is to count on volumes to absorb it. It is the hardest road: every euro of increase has to be covered with two and a half euros of extra sales, which bring with them stocks, trade receivables and production hours to be financed.
In a company's own accounts the check takes two figures: the break-even point calculated with last financial year's energy spending and the one recalculated with the bills forecast for this year. The difference is the extra turnover that energy is demanding of the company.
This article was prompted by a news item published in Banca d'Italia on 8 October 2026.