What is Breakeven Sales?
Understanding breakeven sales allows business owners to forecast cash flow more accurately. They can estimate when revenues will exceed breakeven levels and when they might experience cash shortfalls. This insight enables proactive cash flow management, such as securing financing or adjusting spending, to navigate periods of low cash flow and maintain financial stability.
Breakeven Sales Illustration (in RM):
- Monthly overheads: RM30,000 (Fixed Salary & Allowance, fixed rental, fixed phone bills and photocopier)
- Gross profit (GP) margin: 20%
To calculate the breakeven sales amount, we need to determine the total contribution margin required to cover the overhead costs.
- Breakeven Sales = Total Overheads / Contribution Margin Percentage
- Breakeven Sales = RM30,000 / 20% = RM150,000
Therefore, the business needs to achieve monthly sales revenue of RM150,000 to cover its overheads and reach the breakeven point.
Breakeven Sales Illustration (In Unit):
- To further illustrate, let’s say the business sells products with a 20% GP margin.
- If the selling price of each product is RM100, then the COGS per product is RM80 (80% of RM100).
- The contribution margin per product would be RM20 (RM100 – RM80), which represents the amount contributing towards covering the overhead costs.
So, to cover RM30,000 of overhead costs, the business needs to sell RM30,000 / RM20 = 1,500 units of the product per month to reach the breakeven point.
How InTune Outsourcing Can Support SME Business Owners?
InTune Outsourcing is one of the Malaysia’s Most Advanced and Top Outsourced Accounting, Finance, HR and Payroll services providers.
We have served more than 400 clients todate and InTune offer full-range services from start up to small to medium-sized companies.
InTune takes away the stress and pains from managing Accounting, Finance, Payroll and HR, including Bookkeeping, Payment Services, Accounts Payable, Accounts Receivable, Payroll and more, by providing an expert team of CPAs and other accounting professionals who understand the special accounting needs of growing businesses.
We can also help in preparing Budgets too as part of our Consultancy Package.