Every business has a sales figure below which every workday is a loss. It's called the break-even point and is calculated with a single division. The monthly fixed costs are divided by the gross margin as a percentage. When you convert it to a daily figure, it becomes the simplest thermometer of your business.
The first component is fixed costs. Rent, base salaries with contributions, energy, internet, accounting—any expense that is paid even when the store doesn't sell anything. The second component is the gross margin. It shows how many lek out of every 100 lek of sales remain after paying for the goods or raw materials. If you buy for 60 and sell for 100, the gross margin is 40%. The formula is then simple. The break-even point equals fixed costs divided by the gross margin. Nothing more. The hard part isn't the formula, but knowing your exact fixed costs and your actual margin, and that's exactly where good bookkeeping helps.
A bar-restaurant in Tirana has the following fixed monthly costs. Rent 150,000 LEK, wages and contributions 350,000 LEK, energy, water, and internet 60,000 LEK, accounting and other expenses 40,000 LEK. Total 600,000 LEK per month. The venue's gross margin is 40%, because of every 100 lek in sales, 60 lek go toward the drinks and food purchased. The break-even point is 600,000 divided by 0.40, so 1,500,000 LEK in sales per month. With 30 working days, that's about 50,000 LEK per day. This figure changes everything in how you view the day. A day with 45,000 LEK in cash isn't a quiet day; it's a loss day. A day with 70,000 LEK generated 8,000 LEK gross profit above the break-even point, because once you're past break-even each 100 LEK of sales yields 40 LEK in net contribution.
On our main finance and accounting page, you'll find the break-even point calculator. Enter your fixed costs and gross margin and get the monthly and daily figures for your business. If you don't know your gross margin, the margin calculation format in the Resource Center guides you there in three steps.
The full formula is BEP equals fixed costs divided by the contribution margin ratio, where contribution margin is price minus variable costs per unit. For businesses with multiple product lines, the weighted average margin is used according to the sales mix, and it is precisely changes in that mix that cause BEP to shift even when prices remain unchanged. Two complementary metrics have practical value in monthly reporting to the client. The safety margin—that is, how much percent above the break-even point the business is operating—and the operating leverage, which shows how sensitive profit is to a drop in sales. A business operating just 51% above the break-even point with high fixed costs deserves an early warning, not an end-of-year comment.
Yes, and it absolutely has to be included. A break-even point calculated without your salary only tells you that the business will survive if you work for free. Put in a real salary there, even if it's modest at first.
Whenever something big changes—rent, a new employee, supplier prices—in practice, all you need is a refresh every three months and a quick check whenever you make new decisions.
If you'd like us to calculate your break-even point together using your actual business figures, find us at Contact page or see the packages at offer.
We take care of accounting and taxes, so you can save time, money, and focus on growing your business.
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