The incentive pays for the machine once. You pay for the people every year
21 September 2026, 08:04
The president of Confindustria Bari e Bat, Mario Aprile, says that thanks to the Single Special Economic Zone for southern Italy seven thousand new jobs can be counted, and that in Puglia there are five hundred applications. It is good news for the area. For the individual business owner filling in one of those applications, though, the news contains a management problem, and it applies everywhere: the subsidy arrives once, while the costs that come into the company with the investment stay every year.
The figure that changes is not the investment, it is the break-even point
Take a company with a turnover of €3 million. Variable costs — raw materials, packaging, goods sold — account for 65% of revenue, so €1,950,000. That leaves €1,050,000 of contribution margin, that is the part of revenue that covers fixed costs. Fixed costs are €900,000 and operating profit is €150,000.
The minimum turnover that covers all costs is obtained by dividing fixed costs by the contribution margin as a percentage: 900,000 divided by 35% gives roughly €2,571,000. The company sits €429,000 above break-even, 14% of its turnover. That distance is its solidity, not the turnover itself.
Now the business owner hires five people to run the new line. At €40,000 a year of total employment cost each, that is €200,000 more in fixed costs. The new break-even point is 1,100,000 divided by 35%, that is €3,143,000. Above today's turnover. The company that stood 14% above the line finds itself €143,000 below it. To get back to the previous €150,000 of profit it needs €3,571,000 of revenue: 19% more. This is the number that should be written next to the subsidy application, and almost nobody writes it.
Product cost doesn't fall because you received the grant
There is a second effect, less visible. When the cost of a product is built with direct costing, it includes variable costs and all the specific production costs: indirect labour, energy consumed, consumables, maintenance and the depreciation of the machinery calculated as new. As new means on the full value of the machinery, not on what you paid out of your own pocket after the subsidy.
The reason is practical: in eight years that machine will have to be replaced, and the grant that bought it the first time will not be there. If you lower the product cost because the investment cost you less, you are drawing up quotations on a cost structure that will not be repeated, and the price that comes out of them does not fund the replacement of the plant. The incentive improves cash in the year of purchase. It does not improve the industrial cost.
When to hire is decided on revenue, not on enthusiasm
Not all fixed costs are equal when it comes to the possibility of turning back. A fixed cost is reducible if it has risen compared with its historical level: the past proves that the company has already operated at that level. Five people hired today have no history behind them, and in the day-to-day reality of an SME, staff are fixed only up to a point. It means that those €200,000 come in easily and go out with difficulty.
The criterion for deciding when to let them in is not faith in the project: it is the pace of revenue. The target turnover is spread across the months according to historical seasonality, compared with the actuals as they come in, and the delta is watched. If the delta stays positive for at least three consecutive months, the estimates for the year are revised upwards and the hiring has a basis. If after three months the pace is not there, the investment in plant goes ahead anyway and the people wait.
Tomorrow morning
Calculate your break-even point today — fixed costs divided by contribution margin as a percentage — and then recalculate it adding the full annual cost of the people and the depreciation that the investment would bring in. Look at the difference between the new break-even point and the turnover you are making now, expressed as a percentage. It is the only number that tells you whether the subsidy is making you grow or just raising the threshold below which you lose money.
This article was prompted by a news item published in ANSA.