Guitar Gear Forum

So, my poor little brain is failing hard at this and I'm throwing in the towel and asking for help. I'm pretty sure I'm over thinking things, but so it goes.

I'm trying to figure out what % gross profit we need to make to break even. I can calculate a break even point in numbers, that's not tough, but my brain is broken and not working right today.

What I want to know: x where x = gross profit % I need to average to break even.

What do I need to know to calculate that?

Fixed costs.
Cost of goods.
?????

Help a math challenged brother out.

You need to build a proper cost model. You probably know that. But starting from the goal of determining one point like "break even" and then working backward to build your model will leave you with a model that is incomplete and won't scale. Is the business selling products or services? What is your anticipated range for sales volume? There are a few questions that need to be asked/answered to determine the inputs to the model and the desired outputs.

Sales revenue - direct costs (labor, product costs, etc.) = Gross profit

Gross profit / sales revenue = gross profit rate

That's how I remember doing it from school.

Rampage wrote:Sales revenue - direct costs (labor, product costs, etc.) = Gross profit

Gross profit / sales revenue = gross profit rate

That's how I remember doing it from school.

True that. But I get the sense the ovid is modeling sales/revenue/profit going forward rather than calculating an instantaneous data point. But I may be wrong because he hasn't replied to my post

jimSG wrote:

Rampage wrote:Sales revenue - direct costs (labor, product costs, etc.) = Gross profit

Gross profit / sales revenue = gross profit rate

That's how I remember doing it from school.

True that. But I get the sense the ovid is modeling sales/revenue/profit going forward rather than calculating an instantaneous data point. But I may be wrong because he hasn't replied to my post

I get what you are saying. I just saw gross profit percentage and ejaculated some wasted knowledge from my brain.

Ovid's a tard, so he's probably trying to figure out how to clear the calculator from saying "80085."

As you total sales goes up -- your gross profit to break even should go down.
Assuming your variable costs are included in your gross margin calculation, and only your fixed costs are 'overhead'.
So if you have your total sales, and total fixed costs - the gross margin to break even should be
TS = totals sales
GM = gross margin (% of sales that is profit)
FC = fixed costs

TSxGM = FC
or FC/TS = GM

Save your money and don't open that business....

rear naked wrote:Save your money and don't open that business....

lol

jimSG wrote:True that. But I get the sense the ovid is modeling sales/revenue/profit going forward rather than calculating an instantaneous data point. But I may be wrong because he hasn't replied to my post

Yes, I know what Rampage posted (took me some time to remember it though, sheesh.)

Jim, its retail, but I'm just working on my department.

Say I know my fixed costs, labor costs and an average cost of my product (varies from month to month, but I'm just looking for an average based on say, the previous year's financial statement.)

I'm trying to discover what % profit I had to make just to break even on my costs. Not what to mark things up, just what I had to gross to break even, but shown as a percentage.

My brain is roasted today and I don't know why.

Rampage wrote:I get what you are saying. I just saw gross profit percentage and ejaculated some wasted knowledge from my brain.

Ovid's a tard, so he's probably trying to figure out how to clear the calculator from saying "80085."

YES! It said boobs. lol

mamberg wrote:As you total sales goes up -- your gross profit to break even should go down.
Assuming your variable costs are included in your gross margin calculation, and only your fixed costs are 'overhead'.
So if you have your total sales, and total fixed costs - the gross margin to break even should be
TS = totals sales
GM = gross margin (% of sales that is profit)
FC = fixed costs

TSxGM = FC
or FC/TS = GM

See this is why I struggle with math. Math in the abstract hurts my head even when its relatively simple and straightforward.

So, if I sell 200 worth of something. My costs, including goods, keeping the lights on, paying my employees in cat food are 150.

150/200= .75 Which seems out of wack as the number is generally more in the 25-30% range from what I remember. FAK I wish I knew where my notes on this crap was.

rear naked wrote:Save your money and don't open that business....

Oh there's no way in hell I'm opening my OWN business. Screw that!

Ovid, remember that there are both fixed costs and variable costs.

Fixed: Independent of output (Rent, machinery, etc.).
Variable: Scale with output (Materials, utilities, wages, etc.).

Rampage wrote:Ovid, remember that there are both fixed costs and variable costs.

Fixed: Independent of output (Rent, machinery, etc.).
Variable: Scale with output (Materials, utilities, wages, etc.).

Right, I know that, but for simplicity's sake, let's say I'm doing this off the previous year's financial statement. This wouldn't be a hard and fast # because its variable, if I sell more stuff, it will change (selling more stuff is good!) but I'm just trying to get an idea on what I need to average %-wise for profit per transaction.

Say I'm selling 500 of an item, but my GP is only 5%, I'm losing my ASS because my fixed costs will be higher than that.

So I'm just trying to find out "Last year I needed to do AT LEAST THIS per sale to break even." That number could change for this year, in fact, hopefully it would improve, but just trying to get a baseline on it.

I should stop trying to think about this right now as my brain is toasted and roasted more than it usually is.

80085

edit: The more I'm thinking on this, the more I'm just realizing, I need to get my hands on some actual numbers instead of guestimating them. It throws my expectations off.

To break even, your gross profit must equal the total of your costs.
So add up all of your expenses, then look at your sales numbers.

If you have $100k in costs for the year, then you need $100k in gross profit to break even.
If you did $500k in total sales, you would have needed a 25% markup to cover your costs.
$400k wholesale * 1.25 = $500k retail, giving you a $100k gross.

sixtonoize wrote:To break even, your gross profit must equal the total of your costs.
So add up all of your expenses, then look at your sales numbers.

If you have $100k in costs for the year, then you need $100k in gross profit to break even.
If you did $500k in total sales, you would have needed a 25% markup to cover your costs.
$400k wholesale * 1.25 = $500k retail, giving you a $100k gross.

Holy crap I'm an idiot I've been right there all along and while you guys have been trying to help my challenged self, this did it.

Now to scrounge up the actual numbers and run them.

And probably cry.

So there's no future in selling small ceramic cats wearing t-shirts with anime characters on them?

ovid9 wrote:

mamberg wrote:As you total sales goes up -- your gross profit to break even should go down.
Assuming your variable costs are included in your gross margin calculation, and only your fixed costs are 'overhead'.
So if you have your total sales, and total fixed costs - the gross margin to break even should be
TS = totals sales
GM = gross margin (% of sales that is profit)
FC = fixed costs

TSxGM = FC
or FC/TS = GM

See this is why I struggle with math. Math in the abstract hurts my head even when its relatively simple and straightforward.

So, if I sell 200 worth of something. My costs, including goods, keeping the lights on, paying my employees in cat food are 150.

150/200= .75 Which seems out of wack as the number is generally more in the 25-30% range from what I remember. FAK I wish I knew where my notes on this crap was.

You had one thing backwards - you really were coming out at 25%.

Sell $200
Costs $150
Profit Margin = 25% ($50/$200) = (Sales-Cost)/Sales = Profit as a percentage of sales.
Now let's say you also have FIXED OVERHEAD COSTS of $50

So to plug them back into the original equation:
(which was what margin do I have to make to BREAK EVEN)
TSxGM = FC
or FC/TS = GM
$50/$200 = 25%
Which is the profit margin you need to make on your sales to cover your FIXED COSTS.

mamberg wrote:
You had one thing backwards - you really were coming out at 25%.

Sell $200
Costs $150
Profit Margin = 25% ($50/$200) = (Sales-Cost)/Sales = Profit as a percentage of sales.
Now let's say you also have FIXED OVERHEAD COSTS of $50

So to plug them back into the original equation:
(which was what margin do I have to make to BREAK EVEN)
TSxGM = FC
or FC/TS = GM
$50/$200 = 25%
Which is the profit margin you need to make on your sales to cover your FIXED COSTS.

Yeah, it finally dawned on me after you all beat me over the head with it!

Thanks dude. I need to get a hold on the financial statement and figure out how poorly run things really are.

Rampage wrote:So there's no future in selling small ceramic cats wearing t-shirts with anime characters on them?

Hmmmm....I dunno, but I'm in!

You might want to consider getting this.

http://www.amazon.com/Personal-MBA-Mast ... 1591845572

There are a ton of gross profit worksheets out there that you could easily grab and plug numbers into...and modify based on your particular biz.

OverDriven wrote:You might want to consider getting this.

http://www.amazon.com/Personal-MBA-Mast ... 1591845572

Thanks man! I'll probably get that. There's a couple other business related books I was looking at today online.

I need to get my ass cracking so when my current boss leaves or gets fired I'm fully prepared to wow at the interview.

Or possibly even better, get hired somewhere else to manage first.

mamberg wrote:

ovid9 wrote:

mamberg wrote:As you total sales goes up -- your gross profit to break even should go down.
Assuming your variable costs are included in your gross margin calculation, and only your fixed costs are 'overhead'.
So if you have your total sales, and total fixed costs - the gross margin to break even should be
TS = totals sales
GM = gross margin (% of sales that is profit)
FC = fixed costs

TSxGM = FC
or FC/TS = GM

See this is why I struggle with math. Math in the abstract hurts my head even when its relatively simple and straightforward.

So, if I sell 200 worth of something. My costs, including goods, keeping the lights on, paying my employees in cat food are 150.

150/200= .75 Which seems out of wack as the number is generally more in the 25-30% range from what I remember. FAK I wish I knew where my notes on this crap was.

Sell $200
Costs $150
Profit Margin = 25% ($50/$200) = (Sales-Cost)/Sales = Profit as a percentage of sales.

Some of the stuff I'm seeing on here is scary. If he's buying at $150 and selling at $200 then that's $50 profit, which is a 33.3% profit margin on $150. The proper formula is (sales-cost)/cost.

OverDriven wrote:

mamberg wrote:

ovid9 wrote:

mamberg wrote:As you total sales goes up -- your gross profit to break even should go down.
Assuming your variable costs are included in your gross margin calculation, and only your fixed costs are 'overhead'.
So if you have your total sales, and total fixed costs - the gross margin to break even should be
TS = totals sales
GM = gross margin (% of sales that is profit)
FC = fixed costs

TSxGM = FC
or FC/TS = GM

See this is why I struggle with math. Math in the abstract hurts my head even when its relatively simple and straightforward.

So, if I sell 200 worth of something. My costs, including goods, keeping the lights on, paying my employees in cat food are 150.

150/200= .75 Which seems out of wack as the number is generally more in the 25-30% range from what I remember. FAK I wish I knew where my notes on this crap was.

Sell $200
Costs $150
Profit Margin = 25% ($50/$200) = (Sales-Cost)/Sales = Profit as a percentage of sales.

Some of the stuff I'm seeing on here is scary. If he's buying at $150 and selling at $200 then that's $50 profit, which is a 33.3% profit margin on $150. The proper formula is (sales-cost)/cost.

that's a 33% MARK UP
If you had a 33% PROFIT MARGIN on $200 revenue - your costs would have to be $133.33
This is how it's figured where I work.
not saying wiki is always right - but google 'profit margin' and check out the first wiki link.

WIKI: Profit margin, net margin, net profit margin or net profit ratio all refer to a measure of profitability. It is calculated by finding the net profit as a percentage of the revenue.[1]

where Net Income = Revenue - Cost

Hmm maybe there's more than one definition or I'm losing it, but I've also heard this called percentage profit. Either way, I believe this is the number he's looking for for his purposes.

U R retarded, not really really, I'm drunk. I shit out my accounting degree drunk, I'll figure ur shit when I sobers.

OverDriven wrote:
Some of the stuff I'm seeing on here is scary. If he's buying at $150 and selling at $200 then that's $50 profit, which is a 33.3% profit margin on $150. The proper formula is (sales-cost)/cost.

(Sales-Cost)/Sales = gross margin