Your Break Even

Calculator

The minimum turnover that covers all costs, per year and per month, with the safety margin against what you are invoicing.

How it is calculated

The contribution margin is what is left of revenue after variable costs, which are mainly the cost of goods sold and, to a lesser extent, commissions. Divided by revenue, it gives the percentage.

Break Even is fixed costs divided by that percentage: it is the minimum turnover that covers all costs. Beyond that threshold, every extra euro becomes profit.

How to really use it

The annual Break Even is of little use on its own: it has to be broken down by month and compared with the sales budget and with the orders already secured. That way you know in advance whether the target can be reached or whether corrective action is needed, instead of finding out once the year is over.

It also turns the starting question around: no longer «how much will I sell», but «what turnover do I need so as not to lose money». First you define the costs, then the break-even point, then the sales target.

A less obvious use: fixed costs that are already covered become room for manoeuvre. Cutting the margin on a job to enter a market makes sense, but only if break-even is still reached within the year.

Anyone who does not know their Break Even is doing business with their eyes shut. And a company's solidity is not measured by its turnover: it is measured by the distance between sales and the break-even point.

This is a calculation on three numbers. On your company's real figures, month by month and with a forecast of the next twelve months, the Firm's Predictive Analysis Simulator does it: find out how it works on www.fmstudioconsulenza.it.