Break-even point: how many sales (or members) cover your rent

What is the break-even point?

The break-even point is the amount you need to sell in a month for the money left over from those sales to cover rent, bills and staff exactly. At that point you make neither a profit nor a loss; from the next sale on, you're earning.

The question in a shop owner's head is usually simpler: “How many sales does it take to pay the rent?” Without the answer, setting prices, choosing opening hours or hiring someone new is guesswork. With it, you start each morning with one number in mind: how many coffees, mugs or packages do I need to sell today?

You need three numbers: monthly fixed costs, selling price and variable cost per sale. The examples here exclude VAT.

How do you tell fixed costs from variable costs?

A fixed cost is one you pay at the end of the month even if you sell nothing; a variable cost goes up with every sale. Rent is fixed; the coffee in the cup is variable.

• Fixed costs: rent; electricity, water, gas and internet bills; the total monthly cost of staff; your accountant, service charges and your own salary.
• Variable costs: ingredients and materials, packaging, cups and lids, shipping, per-sale commission, a courier's cut.

Some costs sit in between. The electricity for an oven or a coffee machine rises a little with sales, but splitting it across every product is a chore; in a small business, treating the whole bill as fixed won't spoil the sum and makes life easier. Pay for an instructor or a maker depends on how you pay it: a monthly salary is fixed, while a share of sales or pay per piece is variable. Pay per class depends on the schedule; if the schedule is set, treat the monthly total as a fixed cost.

What's left from each sale, and how do you find it?

What's left from each sale, often called the contribution per unit, is the money you keep after taking a product's variable cost off its selling price. Rent, bills and wages are paid out of it.

In a ceramics workshop, a mug sells for ₺300 and costs ₺89 to make, clay, glaze and box included. That leaves 300 − 89 = ₺211 per mug. If the workshop's rent is ₺15,000, bills ₺3,000 and other costs ₺2,000, monthly fixed costs come to ₺20,000. 20,000 ÷ 211 = 94.8, so 95 mugs a month. At 94 mugs you'd have ₺19,834 left, ₺166 short; that's why you always round up. See how the cost per piece comes out of raw materials on the cost and stock tracking for workshops page.

It also helps to think of the contribution as a percentage: 211 ÷ 300 = 70.3%. That's the mug's profit margin; we cover setting prices from it in profit margin and pricing.

What is the break-even formula?

Break-even units are your monthly fixed costs divided by the contribution per sale. To get a daily target, first divide the monthly fixed costs by the days in the month.

The closed-day detail looks small but moves the target. Divide ₺93,000 of fixed costs by 30 days and you need ₺3,100 of contribution a day; divide it by 26 because you close on Mondays and you need about ₺3,577. The days you're open pay the rent for the days you're shut.

Café example: how many coffees pay the rent?

A café with ₺93,000 of monthly fixed costs and ₺62 left on an average drink breaks even at 1,500 drinks a month; in a 30-day month, that's 50 a day. Here's the sum step by step.

So in this café, the 50th drink of the day covers the rent, the bills and the wages; profit starts with the 51st. The ₺38 variable cost is coffee, milk, cup and lid, and it moves whenever the recipe or an ingredient price changes. See how the cost of a cup is worked out from your purchases on the stock and cost tracking for cafés page.

How many members does a studio or course need to cover the rent?

In a membership business, the unit you sell is a member: divide monthly fixed costs by what's left from the average monthly package after the instructor's share. Forget the instructor's share and you'll underestimate the members you need.

The sum that forgets the instructor says 8 members are enough; in reality you need 12 active members. An active member is one with a valid package that month; a member whose package is used up or expired doesn't count. If the instructor is on a monthly salary, say ₺24,000, that goes into fixed costs instead: 32,400 + 24,000 = ₺56,400; 56,400 ÷ 4,500 = 12.5, so 13 members.

A course works the same way; just read students for members and teachers for instructors. You can see how the class schedule, instructor pay and the month's till fit together in a studio on the member and package tracking for pilates studios page, and the whole flow, courses included, on the member tracking page.

What happens if the rent goes up or your margin falls?

When rent rises, break-even units go up by the increase divided by the contribution; when the contribution falls, all of your fixed costs are divided by a smaller amount. Five cases from the café example:

The row that matters most is the third: a ₺7 rise in cost per drink needs more sales than a ₺10,000 rent rise (1,691 against 1,662). Everyone talks about a rent rise; ingredient price rises arrive quietly and are easy to miss until the end of the month. A price rise works the other way: ₺10 more brings the daily target down from 50 drinks to 44. But if fewer customers come, that gain melts away, so watch sales for a few weeks after you change prices.

How do you use your break-even number?

The break-even number means something once you put it next to your real sales. If your daily average is below target, you have four levers: price, opening hours, staff and minimum order.

• Price: the quickest way to grow the contribution. Start with the product that sells the most but leaves the least.
• Hours: staying open when almost nothing sells adds to the bills and the shifts. If you add a closed day, the break-even load moves onto the remaining days; recalculate with the days you're open.
• Staff: a new hire adds their pay to fixed costs. In the café example, a ₺20,000 part-timer means 323 more drinks a month; if those hours don't bring that many extra sales, the hire pushes break-even further away.
• Minimum order: if you're a patisserie or a home maker working to order, divide your fixed costs by the number of orders you can handle in a month to find what each order has to carry. With ₺12,000 of monthly fixed costs and room for 40 orders a month, that's ₺300 of contribution per order; anything below that is under your minimum.

None of these is a miracle on its own. But they all answer the same question: which change brings the break-even number below what you actually sell?

How do you check your break-even every month?

Once a month, update your fixed costs, recalculate the contribution and compare the daily target with that month's real average. If rent, prices or costs change, recalculate straight away rather than waiting for month end.

1. 1Add up fixed costsWrite rent, bills, staff total and other costs as monthly amounts; don't forget your own salary.
2. 2Find the contributionTake the product's materials and packaging off the average selling price. In a studio, take the instructor's share off the average package value.
3. 3Work out break-even unitsDivide fixed costs by the contribution and round up.
4. 4Turn it into a daily targetDivide monthly fixed costs by the days in the month or the days you're open, then divide that by the contribution to get sales per day.
5. 5Compare with realityEvery week, put your average daily contribution next to the target; in a studio, look at your number of active members.
6. 6Recalculate when things changeWhen rent goes up, an ingredient price rises or someone new joins, redo the sum that day.