Aqid ERPWhat the break-even point is
Each unit sold brings its price and costs its variable cost — the stock, the packaging, the commission. What is left, the contribution margin, goes to pay the fixed costs: rent, salaries, subscriptions, which are the same whether ten units sell or ten thousand. The break-even point is the number of units whose margins add up to the fixed costs. Below it the business loses money; every unit above it is profit.
A worked example
A shop with SAR 30,000 of fixed costs a month sells an item for 50 that costs it 30.
| Margin per unit: 50 − 30 | 20.00 (40%) |
|---|---|
| Break-even: 30,000 ÷ 20 | 1,500 units |
| Sales at break-even: 1,500 × 50 | 75,000.00 |
| For a 10,000 profit: (30,000 + 10,000) ÷ 20 | 2,000 units |
Using it well
Put prices and costs in without VAT: the VAT a business collects is owed to the tax authority, not earned. A business selling many products can use its average price and average variable cost, or its margin percentage: fixed costs ÷ margin % gives the sales it needs. Most worth checking is what moves the point: a 10% higher price here cuts break-even from 1,500 units to 1,200.