Do you know your break-even point? How much do you have to sell each month to cover all the fixed expenses in your business? This is an important concept I learned from Robyn Johnson’s Unstoppable Academy. Here’s how I calculated mine:
- First, I made a list of all our monthly expenses associated with the business. This includes subscriptions : Amazon pro account, InventoryLab, paid groups and apps, business insurance, and other recurring expenses. Spend some time on this, and come back to it again later. You might be surprised at what you forgot the first time.
- I also included our own paycheck, our VA, and the amount we pay our daughters IF we have agreed to give them a minimum amount of hours.
Each of these is a fixed cost with little or no variation from month to month. It’s important to include your own pay, because your time is not free, and it’s not unlimited. If your business is built around the assumption that your time is free and unlimited, you cannot expand beyond your own personal ability to work, and you become a slave to your business – an unpaid worker who cannot leave.
The total is our monthly fixed expenses. Let’s just call it Fixed.
- Then I used InventoryLab to find our average profit/item (go to FBA Sales and look at the bottom right). I subtracted our per-item expenses: $1.25 for sourcing, and $1.25 for prep/ship because these costs are added to nearly every item we source. This gives a better picture of our profit/item. We’ll call this Profit.
- Fixed ÷ Profit tells me that we need to sell XXX items/month to break even.
- I multiplied the number of items we need to sell by our ASP (Average Selling Price – find it in Seller Central: Reports: Business Reports) and learned that we need to sell $XX,XXX/month to break even.
So the formula is (Fixed ÷ Profit) x ASP = Break Even Point
This is how much we need to sell each month (gross sales) in order to cover our basic business expenses. This number doesn’t tell the whole story – it won’t let us expand our business, and if we didn’t spend enough on new inventory our sales would quickly drop off a cliff. But this is a good starting point for understanding how our expenses affect the health of our business.