In this case, you need to evaluate the company's activities, identify the product with the highest sales and decide where you can save money. You can do this yourself or contact professionals who will analyze everything and offer solutions.
The figures of 5-20% are considered average. The activity is efficient and the profit is stable if the profitability falls within this range.
An indicator of 20, 30 percent or more indicates kuwait whatsapp numbers that your business is successful and profits are growing steadily. You can pass on your experience to others.
Knowing how to find the sales profitability threshold using the formula, you can develop a plan for further development. For example, if Sergey acts as efficiently as possible, he will be able to launch a chain of stores. If the business is unprofitable, then the threshold formula will show how not to work with losses.
Breakeven Point = (Fixed Costs / Margin) x 100%
Constant expenses are those that the company has under any circumstances. Thus, Sergey pays rent every month, pays for electricity and water, and pays for the staff.
Marginality tells us what percentage of the revenue earned (minus non-fixed costs) remains in the company. Margin is calculated as follows:
Marginality = ((Revenue - Variable Costs) / Revenue) x 100%
So, the businessman calculated all monthly expenses and income to establish the threshold of success for his business. Revenue was 550 thousand, and expenses were 300 thousand. Then the marginality: ((550 thousand - 300 thousand): 550 thousand) x 100% = 45%.
Monthly rent payments are 10 thousand rubles, staff salaries are 20 thousand rubles, utility payments are 5 thousand rubles. The total mandatory expenses for the month are 35 thousand rubles.
Let's calculate Sergey's threshold: (35,000: 45%) x 100% = 77,777 rubles. That is, for his business to cover all costs and bring in profit, he needs to earn at least 77,777 rubles every month.
It is also important to remember about such a concept as the break-even point. This is the sales volume at which the enterprise operates without losses and without profit. A good sign is that the company has overcome the break-even point by the tenth day of the month.
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What does an increase and decrease in sales profitability indicate?
Consideration of factors influencing the dynamics of sales profitability allows us to identify the strengths and weaknesses of company management and develop measures to improve business sustainability.
Increase in sales profitability
Revenue is growing faster than expenses. This may be due to:
increasing sales volumes;
changes in the sales range.
As the volume of goods sold in physical terms increases, revenue increases faster than expenses due to production leverage.
The cost of goods consists of variable and mandatory costs. Changing the cost structure can have a significant impact on the amount of profit. Investment in fixed assets leads to an increase in fixed costs and, in theory, should be accompanied by a decrease in variable expenses. However, there is no linear dependence here, which makes it difficult to select the optimal combination of fixed and non-fixed costs.
Increase in sales profitability
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The enterprise's revenue may grow not only due to the rise in product prices, but also due to the fact that the range of goods changes. This vector of development of the organization is favorable.
Costs are falling faster than revenue. This may be the result of:
increase in the cost of products or services;
changes in product range.
In this case, profitability formally increases, but the volume of revenue falls, so this trend cannot be clearly defined as favorable. In order for the conclusions to be correct, it is necessary to analyze the pricing and assortment policy of the enterprise.
Revenue is growing and expenses are decreasing. This may be due to:
price increase;
change in sales assortment;
revision of spending standards.
This trend is favorable, and further analysis is aimed at assessing how sustainable this position of the enterprise is.
Decrease in sales profitability
Expenses are growing faster than revenue. Possible reasons:
inflationary rates of expenses are higher than revenues;
reduction in cost;
change in the sales assortment structure;
increase in spending rates.
This trend is bad. To solve the problem, it is necessary to analyze the pricing and assortment policy of the enterprise, evaluate the cost control system.
Costs are falling more slowly than revenue. This may be due to:
reduction in sales volumes.
This situation occurs when the organization's activity in the market decreases. Revenue decreases faster than costs, under the influence of production leverage. It is necessary to analyze the company's marketing policy.
Revenues are falling and expenses are rising. This is due to the following reasons:
reduction in cost;
increase in spending standards;
change in the sales assortment structure.
It is necessary to analyze pricing and product range policy and evaluate the cost control system.
Provided the market is stable, revenue changes faster than expenses only under the influence of production leverage. In all other cases, this is due to an incorrectly structured accounting and control system in the organization or to a change in operating conditions (inflation, cost structure, demand, level of competition).