BreakEven

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How to work out you break-even sales figure

This blog is a step by step guide on how to know the amount of sales you need to be achieving to cover your costs.

 

Step 1: Work out your Gross Profit percentage.

 

Total up your cost of sale figures.

 

Subtract the cost of sale total from the total revenue figure to get a total gross profit figure. E.g £50,000 (Revenue) - £10,000 (Cost of sale) = £40,000 Gross Profit.

 

Divide the gross profit total by the revenue total. E.g. £40,000/£50,000 = 0.8 i.e. 80%

 

Step 2: Total up your monthly overheads.

 

Simply add up all your overheads costs together.

 

Overhead expenses are all costs on the P/L statement of a business with the exception of direct labour, direct materials, and direct expenses.

 

They often include; Accounting fees, advertising, insurance, interest, legal fees, rent, travel expenditure, etc. It will be easiest to work out the total by using an Excel Spreadsheet. Right down all your overhead costs cell by cell in a column, vertically. Then click ‘=’ at the bottom of the column, type ‘sum’ and drag over all the overheads and hit enter.

 

Step 3: calculating the break-even sales amount (monthly)

 

Divide the total overhead costs by the GP (Gross Profit) percentage. E.g.£20000 (Overhead costs) / 0.8 = £25000.

 

In this example; £25,000 is the monthly break even figure. This means that through sales, the business needs to bring in £25,000 monthly sales to cover costs

 

(Optional) Step 4: Working out the break-even amount with business owner drawings included.

 

Decide what you, as a business owner, want your drawings/dividends to be. E.g. £36,000

 

Divide £36,000 by 12 to get a monthly wage. E.g. £36,000/12 = £3000

 

Add on £3000 to the total overhead monthly costs e.g. £20,000 + £3000 = £23,000

 

Repeat the same formula for the break-even amount as before with the new overhead costs total. E.g. £23,000/0.8=£28,750

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