I am currently looking into renting a second location and am trying to figure out my daily breakeven point to see if it is feasible.
My rent would be: $2200 ($74 a day)
Utilities: $1000 ($34/day)
Employees: $7200 ($240/day)
Misc.: $900 ($30/day)
So we have $11,300 ($377/day)
Our average markup is 30%…so if i did this right i did $377 x 1.7 = $640.90
But 70% of the 640.90 is product right? ($448.63)
Would i add 640.90 plus 448.63?
So is my real breakeven $1089.53 per day?
Thanks!
You need to clear $377/day above your cost of goods sold. With a 30% markup, for each dollar of product you buy (and actually sell) you take in $1.30 and have $0.30 left over to apply towards your fixed costs.
So $377/$0.30 is how much product you need to buy to make it work. That’s $1256.67 of product. And when you sell $1256.67 of product with a 30% markup that is sales of $1256.67 * 1.30 = 1,633.67 of sales in the cash register.
Unless you’re open 365 days of the year, don’t forget to allow for the days you’re closed. e.g. if you’re only open M-F divide your monthly rent by 22 to get the amount of rent you need to earn each day you’re open.
X * .3 = 640.90
X = 640.9/.3
X = 2,136.33
To check 2136.33 in sales * .3 profit = 640.90
Pieces of it in various posts.
If operating costs are $377, then you need $377 of margin on sales to cover those. So, $377 is 30% of what? Answer is $1256, as already stated.
If you have $1256 in sales, that’s $1256. No need to go further. You would cover operating costs but make no money.
$1256 of sales would come from $1256-377 = $879 of purchased goods on hand (assuming the inventory cost includes nothing other than the purchase price of what’s sold. That’s a bad assumption, it usually includes more though not always for a small business). $879 is also 70% of 1256, as you would expect. .
No, the figures in the first response from** LSLGuy** are correct. Heed the warning about using daily figures.
In addition to the warning about the adjustment for days you aren’t open, another warning is to be careful of the definition of “margin”
30% markup is not the same as 30% margin. If you buy something for $1 and sell it for $1.30 that’s a 30% markup, but only a 23% margin. If you are buying for 70c and selling for $1, that’s a 30% margin, but a 43% markup. Maybe you are using the terms interchangeably but manufacturers reps in particular use markup the way I am defining it.
The second is to account for unsold product, whether it is from theft, damages & returns or just stuff that doesn’t sell and piles up in the stockroom (the watermelon color that you loved but your customer didn’t). You need to generate sales and margin to cover that as well.
Seems elementary, but I’ve been helping some small businesses look at expansion opportunities recently, and they seem to be unfamiliar with these nuances far too often. Their first few locations do so well that this doesn’t matter, but when you start adding more locations the law of diminishing returns kicks in, and pencils need to be sharpened.
Finally, make sure you account for any sales that your other store (or stores) will be losing to the new one. I just did some work with a bakery that is closing its new location after only six months, because even though they are making money at their new location, their sales are coming mostly at the expense of their old one. Problem is that now they have cultivated a demand at the new location, that anyone who takes over the lease can exploit.
Thanks for all the tips!
Theft is something i haven’t accounted for, unsold product and damages is minimal as i have a business that buys anything i want to get rid of at the end of each month. At 50% of my cost, so there is some loss, but its better than sitting on it.
The locations are about 20 miles apart, so cannibalism of location #1 should be extremely small. And the location is right in line between my suppliers and store #1, so shipping and receiving costs are small as we own our own trucks, and we have to drive right past it anyway.
Don’t be afraid to view this the opposite way … what will the market bear? How does the price at 30% mark-up compare to your competition? This is a mistake I make more often than I like to admit, staying focused on a specific margin while the market inflates out the roof. Shocked I say, shocked that the market in 2009 could sustain a 50% increase in earnings …
For what it’s worth, at my company we always figure profit, not markup. For a 30% profit, you divide your cost by .7
$25/.7 = $35.71 With this figure, you keep 30% of the total sale.
$25*1.3 = $32.50 With this figure, you keep 23% of the total sale.
If you’re calling what you do “profit”, you’re doing it wrong. The way you’re figuring it, the 30% is “margin”. Sometimes called “gross profit”, but even that is flaky terminology IMO.
“Gross margin” is a good term for that too, with “net margin” being gross margin minus your unsaleable-but-unreturnable goods factor.