Break-even, and what happens either side of it BREAKEVEN
A business with operating leverage of four turns a ten per cent fall in volume into a forty per cent fall in profit. Almost nobody’s intuition expects that.
What it costs to open the doors
Fixed costs are the ones that do not move with volume: rent, salaries, insurance, the accountant. If a cost goes up when you sell one more, it belongs in the cost of making that one, not here.
What you sell
Mix is the ratio they sell in: six of one for every three of another. Break-even is found for that bundle, which is why the answer moves when the mix does.
Where the line is
Which lever is worth pulling
How much you can discount
The working
How it works
BREAKEVEN works out how many sales a business needs to cover its costs, and what happens either side of that point. Its operating leverage figure shows how a small change in volume becomes a large change in profit: at a leverage of four, a 10 per cent drop in sales is a 40 per cent drop in profit. It handles several products with different margins and shows why price is usually the biggest lever. Your costs stay in this tab.
Doing this often? OBSCURA Books keeps the real figures behind a break-even: profit and loss for any dates, with the period before beside it. On its own, US$4 a month; with everything else, US$9 a month or US$79 a year. 7 days free.