Check your pricing and break even point
Check your pricing and break even point
Understand what each sale contributes and how much you need to sell to cover fixed costs. Keep the calculation separate from your cash forecast.
List costs that change with each sale
Include the item purchased or produced, packaging, transaction charges and delivery costs that increase with sales. Use the same unit and tax basis throughout. For mixed products, calculate separately or use a clearly supported sales mix.
Calculate the contribution per unit
Subtract variable cost per unit from the selling price per unit. Illustration only: a MWK 5,000 price less MWK 3,000 variable cost leaves MWK 2,000 contribution. If price is equal to or below variable cost, additional sales will not cover fixed costs under this simple model.
Estimate the sales needed to cover fixed costs
Divide fixed costs for the period by contribution per unit. With MWK 200,000 monthly fixed costs and MWK 2,000 contribution, break even is 100 units. Include realistic staffing and premises costs. This simplified operating calculation excludes debt principal, tax and asset purchases unless explicitly included in the chosen cost basis.
Check capacity and payment timing
Ask whether customers will buy that volume at that price and whether you can deliver it. A profitable price does not guarantee enough cash if customers pay late or stock must be bought in advance. Review prices when costs change and test the forecast before expanding.
Put it into practice
Calculate contribution and break even for your main product. Then put the purchase and collection dates into your cash forecast.
Explore the next step
Take the next step with clarity
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