The biggest question when launching a new business is “how much sales do I need to break even?”
BTW I just released a YouTube video doing a deep dive on this topic:
To answer this “break even” question we need 2 numbers:
1) Variable costs
2) Fixed costs
In our painting business, the variable costs are:
- 12% materials
- 42% labor
- 8% royalty/brand fund
- 3% credit cards
Total = 65%
Contribution margin = 100 – 64% = 35%
For every $1 of sales, $0.35 contributes to cover fixed costs and ultimately profit.
Let’s say my fixed costs are:
- $4,000 for loaded manager payroll
- $4,000 marketing
- $1,000 for truck expenses
- $4,000 for insurance, admin & everything else
Total Fixed costs = $14,000 per month
Fixed Costs / Variable Costs = Break-even sales
$14,000 / 35% = $40,000
We need $40,000 of sales to break even
How much are we making at $50,000 in sales?
$50k x 35% = $17.5k – $14k = $3.5k profit
This math works for a single unit and a $45M/year multi-unit business.
Understanding how your fixed & variable costs affect your profitability is critical to building a profitable business.
Watch this YouTube video to learn more
Cheers!
Brian
P.S. Want my help in finding a great franchise? Click here to book a free strategy call with my team.
