The break-even point where there is no profit but no loss
Until 8 years ago, I had boutiques at Ramayana Mall in Denpasar, Bali and Danau Tamblingan Street in Sanur, Bali, and my strategy was to run a time machine to take advantage of the fact that "Jakarta's trends come to Bali 3 months late".
Every month, we would buy the latest trendy imported Chinese models of clothes at the Whole sale store in Mangga dua, Jakarta, and send them to Bali by DAKOTA cargo on the spot to be displayed in the store one week later. Women's clothes, especially trendy ones for ABG (Anak Baru Gede), are like raw goods, freshness is essential.
To put it simply, the break-even point is how many pieces (or how much) you have to sell in order to generate tenant fees and labor costs, and at this point there is "no loss and no profit".
- Sales - variable costs = fixed costs
- Marginal Profit = Fixed Cost
My wife was in charge of purchasing and sales, and I was in charge of transportation and accounting, and the store was run by five SPGs (Sales Promotion Girls) in two shifts.The SPGs' salary is 800,000 rupiah/person.
As an accountant, I'd like to start with
- Let's pay 7juta of tenant rent and 4juta of labor costs in OMSET (sales).
We think of it as a fixed cost at the end of the month. Actually, we have paid the rent for one year in advance, so we don't run out of cash at the end of the month, but we divide it into monthly installments as a fixed cost at the end of the month. As expected, we can sell 11 juta per month, so we can clear this one with ease.
The next thing to consider is.
- Let's use OMSET-MODAL (purchase cost as a percentage of cost of sales), or Profit to recover tenant rent 7juta and labor cost 4juta
The MODAL part is "MODAL to OMSET", so this is the variable cost (direct material cost in manufacturing).
- MODAL＝In stock at the beginning of the month + Deposit for the month - In stock at the end of the month
We sell clothes at a profit margin of around 40%, which means that normally.
- 11juta÷0.4=27juta
The break-even point, where there is no profit but no loss, is reached only when sales are this high, and the profit margin of 0.4 of the selling price to the purchase price at this point is called the marginal profit margin.
When you are coasting in the warm Bali, you forget about the initial investment (first year's rent) and you just need to clear the payment at the end of the month and have some profit left over, but when the time comes to renew the rent for the next year, you start to realize the reality and start to panic.
Sales enough to recoup fixed costs.
The idea of a break-even point is "the number of clothes sold or the amount of money sold to recover the monthly tenant rent and labor costs," which means that you want to book at least enough sales to not lose money. For a retailer like me, it makes sense to try to recover the fixed costs at the end of the month by using the profit that the product itself brings in that moment (sales - variable costs = marginal profit).
- Fixed Costs / Marginal Profit Margin = Breakeven Sales
This is called a Cost Volume Profit (CVP) analysis, and it calculates sales (Sales Volume) at the point where there is "no profit (Profit) and no loss". I'm not too sure about the above calculation, so please point me out if I'm wrong.
This kind of "how much to sell in order to recover the fixed cost" is not directly related to the system installation work, and is therefore not an issue for system vendors.
System providers tend to make system development and implementation an objective in itself, but if they can't imagine the original purpose of the system for the user, it will be a theoretical, theoretical, empty theory.
After all, it is important to visit the site, even if it is hot, if you get back pain from traffic jams, or if you have to spend 10 inconvenient days in a collision.