“How much must we sell not to lose money?” sounds simple until rent, packaging, delivery commissions, overtime and product mix enter. Break-even uses the margin left after truly variable costs, not gross turnover.
Produce three useful results
- Unit contribution = price excluding VAT − unit variable cost.
- Contribution ratio = contribution ÷ revenue excluding VAT.
- Break-even revenue = fixed costs ÷ contribution ratio.
- Break-even units = fixed costs ÷ unit contribution.
- Break-even date = when cumulative contribution covers fixed cost.
- Safety margin = planned sales − break-even sales.
- Scenario by mix, price and volume.
1. Sort costs by behaviour
A fixed cost does not directly change with each unit over the horizon: rent, permanent salary, subscription. A variable cost follows the sale: product, ingredient, unit packaging, proportional commission. Some are mixed or step costs; document the variable part or step instead of forcing one label.
| Cost | Possible class | Question |
|---|---|---|
| Product purchase | Variable | Does it rise with each sale? |
| Rent | Fixed for the period | Does volume change it? |
| Delivery | Variable or mixed | Per order or flat? |
| Staff | Fixed plus step | When is another shift needed? |
Use values excluding recoverable VAT when measuring economic profitability. Collected VAT is not margin; validate non-recoverable tax treatment.
2. A MAD example and its cross-check
A service sells for MAD 300 excluding VAT. Complete variable cost is MAD 120; contribution is MAD 180, or 60% of price. Monthly fixed costs are MAD 54,000. Break-even is 54,000 ÷ 180 = 300 services, or 54,000 ÷ 60% = MAD 90,000 revenue excluding VAT.
| Item | Calculation | Result |
|---|---|---|
| Contribution | 300 − 120 | MAD 180 |
| Ratio | 180 ÷ 300 | 60% |
| Units | 54,000 ÷ 180 | 300 |
| Revenue | 54,000 ÷ 0.60 | MAD 90,000 |
Cross-check: at 300 sales, total contribution is MAD 54,000, exactly fixed cost. A different result usually means contribution, markup, VAT or variable cost was mixed.
3. A multi-product business needs weighted contribution
A café does not sell one product. Calculate contribution by family and use expected mix. If high-contribution drinks lose share to low-contribution offers, revenue break-even rises even where MAD sales remain close. Include shrinkage, giveaways and discounts.
- Group products with similar economics.
- Calculate net average price after discount.
- Calculate complete variable cost.
- Measure contribution by family.
- Apply the expected mix.
- Calculate weighted ratio.
- Test an adverse mix.
- Compare with real capacity.
Capacity is another limit: 300 services may be financial break-even but impossible with two workstations. Meet the model with available hours, tables, covers or shelf space.
Break-even date is not the day the bank turns positive
It comes from cumulative profit assumptions. Deposits, investment, customer terms, repayments and stock can move cash differently.
4. Use break-even to decide, not reassure
BelloPOS can supply volume, net price, discounts and mix. Add variable cost, fixed cost and capacity from controlled sources. Recalculate after supplier increases, new rent, commission or opening-hour changes.
- Price +5%: volume and contribution effect
- Variable cost +10%: new break-even
- Added fixed cost: extra sales required
- Adverse mix: weighted ratio
- Safety margin: distance before loss
Do not conclude “open” because the central case passes. Inspect prudent scenario, cash before break-even and WCR funding.
Mistakes to avoid
- Including VAT as revenue.
- Omitting a variable commission.
- Confusing margin and markup.
- Using an unrealistic average product.
- Ignoring capacity.
- Confusing profit and cash.
Frequently asked questions
Which margin should be used?
Contribution after variable costs: revenue excluding VAT less costs that move with sales over the horizon.
How is break-even timing calculated?
Accumulate seasonal contribution until fixed cost is covered; a simple annual day ratio can hide seasonality.
What about several products?
Use a contribution ratio weighted by expected mix and test a less favourable mix.
Are salaries fixed?
They may be fixed, variable or step costs depending on contracts and capacity. Model actual behaviour.
Does BelloPOS calculate break-even?
Sales, discounts and mix feed it; cost, capacity and scenarios require controlled inputs.
What to take away
Break-even becomes a decision tool when variable cost, mix, capacity and cash before the threshold are all visible.
Sources
The figures and rules quoted above come from these pages, read on the date given in the article.
Recalculate with the weakest month
Use mix, discounts and shrinkage from a real prudent month, not the best month.
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