To assess the true profitability of a company, you need to understand what the success rate must be to be considered positive. Negative values are 5% or less. They indicate that you are spending too much money on variable expenses.
In this case, you need to evaluate the company's activities, identify the product with the highest sales and decide where you can save money. You can do this yourself or contact professionals who will analyze everything and offer solutions.
The figures of 5-20% are considered average. The activity is efficient and the profit is stable if the profitability falls within this range.
An indicator of 20, 30 percent or more indicates that your business is successful and profits are growing steadily. You can pass on your experience to others.
Knowing how to find the sales profitability threshold using the formula, you can develop a plan for further development. For example, if Sergey acts as efficiently as possible, he will be able to launch a chain of stores. If the business is unprofitable, then the threshold formula will show how not to work with losses.
Breakeven Point = (Fixed Costs / Margin) x 100%
Constant expenses are those that the company has under any circumstances. Thus, Sergey pays rent every month, pays for electricity and water, and pays for the staff.
Marginality tells us what percentage of the revenue earned (minus non-fixed costs) remains in the company. Margin is calculated as follows:
Marginality = ((Revenue - Variable Costs) / Revenue) x 100%
So, the businessman calculated all monthly expenses and income to establish the threshold of success for his business. Revenue was 550 thousand, and expenses were 300 thousand. Then the marginality: ((550 thousand - 300 thousand): 550 thousand) x 100% = 45%.
Monthly rent is 10 thousand rubles, staff honduras phone data salaries are 20 thousand rubles, utility bills are 5 thousand rubles. Total mandatory expenses for the month are 35 thousand rubles.
Let's calculate Sergey's threshold: (35,000: 45%) x 100% = 77,777 rubles. That is, for his business to cover all costs and bring in profit, he needs to earn at least 77,777 rubles every month.
It is also important to remember about such a concept as the break-even point. This is the sales volume at which the enterprise operates without losses and without profit. A good sign is that the company has overcome the break-even point by the tenth day of the month.
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