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Break-even point - this is how you reach it faster with FrachtPilot
Katharina Rösner
It is obvious that companies want to make profits as quickly as possible. In the start-up phase, the time is also interesting from the point of view of investors. Den Break-even point, i.e. the time at which the costs are just as high as the revenue, can be calculated for individual products or even for the entire company. Using a sample calculation, we'll show you how to reach the break even of your delivery service faster - which you can with the help of FrachtPilot.
The Break-Even Point describes the point in time at which the profit of a company or start-up is equal to the costs involved. To do this, you subtract the costs from sales to get the profit, which is then 0. Then achieved turnover limits the profit. You can find an example of analysis at Preplounge. There is also a distinction between the calculated break even, i.e. the time at which you loudly P&L operates profitably, and the liquidity-related break even, in which the month from which the Cash inflows are higher than cash outflows for the first time. This is a relevant information from a business plan for investors in particular or credit institutions, as you have been dependent on investments up to this point because you are not in the profit zone, but in the minus or loss zone. You should therefore be able to say in advance exactly how much of what you need to sell in order to reach the break-even point.
You can use the break-even point for daily business calculate or for longer periods. In the same way, the required sales quantity per product can be calculated in order to “break even”. Calculating BEP on a daily basis is very simplified as the sales volume can vary. A typical example of this is ice cream, which has sales peaks in summer when the weather is good. Therefore, the Break-even point rather on a monthly or annual basis considered.
In addition, profit can only be increased up to a certain point with the resources that you have available. If you want to increase it effectively, you have to increase the production volume or increase the sales area, for example. As a result of such investments and more employees, fixed costs are also increasing, which is also Jump-fixed costs are those that are only covered with twice the sales volume. Startups often only reach profitability in the second year of founding as a result of the increase in turnover. Any sale leads to sales due to the contribution margin. In order to increase this, you can consider where you can save costs or whether you can increase the price.
The BEP is also relevant in the liquidity planning. Fixed costs often cannot be transferred to a specific product, which is why it is not so easy to determine a minimum sales quantity. When break even is reached also depends on the market size and market share from and from capacity utilization. The BEP is mentioned at the top of the business plan because it is absolutely relevant for investors and credit institutions. It is only calculated in the profit and loss statement. The BEP is just a milestone for a company.
How many units do you have to sell to cover the annual fixed costs of, for example, 1 million euros? Since the selling price should cover the Self-costs, but must also be competitive, it cannot be infinitely high. Read more about self-costs in our glossary. The goal is to increase sales volume. How much is possible and how likely that is must be shown in the price calculation in the business plan, as this is very relevant for investors and Kreidtors and your own calculation for your business. You can read more about the price calculation in our blog and how to write a business plan in our blog.
For the production there will be total costs, consisting of fixed and variable costs. Fixed costs are, for example wage costs or rent. There are variable costs when purchasing ingredients or propellant, which may vary due to their own sales price. The selling price, which you set yourself, must on the one hand cover the costs, but on the other hand also be competitively.
In concrete terms, this means that you need to have a positive contribution margin per unit because the variable costs are lower than the selling price. The profit per product is calculated by subtracting the variable costs per product, consisting of, for example, transport costs or raw materials, from the selling price per product.
Fixed costs are fixed in that they represent current expenditure that can only be increased or reduced over a longer period of time. These include, for example expenses for employees and software or hosting a website. With For founders, you can find the definition of fixed costs.
Variable costs however, can fluctuate when, for example, purchase prices of ingredients or fuel are sometimes higher, sometimes lower. This must be included in the price calculation. As a result, you may have to sell more to achieve the Break-even. You can find the calculation at Lexware, more about variable costs you can read on the for founders page.
The revenue is derived from the Price * Quantity x.
The costs result from fixed costs and variable costs per unit, i.e.: Fixed costs + variable costs * selling price.
Converted according to the unknown sales volume, the result is the formula: Quantity x = fixed costs/(sales price - variable costs).
In addition to BEP, you can also calculate the ROI. The Return on Investment is a key figure that represents the relationship between profit and investment. Accordingly, it shows how efficiently capital is being used to generate profits. It is a financial and corporate management key figure. The difference is therefore how profitable an investment is and whether it is worthwhile, while the BEP only states at what point in time a company can survive on sales. It is calculated by using the Subtract costs (investments) from benefits (profits), divide by costs (investments) and then multiply by 100. The percentage reveals the profitability of an investment. The calculation therefore shows how much it is worthwhile for a bread delivery service to invest in an ERP system. The higher the percentage the better.
The use case of Freight pilot It traditionally exists at bread delivery services, which, for the organization of their operating processes, a ERP software use. We have briefly described in glossary and FrachtPilot's blog what ERP software is, by the way. This was developed specifically for delivery services and regional direct marketing companies and therefore has a use case on the market. With the help of ERP software, FrachtPilot customers can office work thus design efficiently that they can save time and money and also the reach break-even point faster.
At the start fixed costs as for the softwares as well as storage and the Equipment between 2,000 and 10,000€ will approach you. Also for vans and others transport vehicles between 15,000 and 40,000€ - depending on the size of the company. Investments must be recovered, so you want to break even as quickly as possible. Efficiency in delivery, office work and warehousing can be achieved with suitable ERP software.
The Proversion of FrachtPilot costs 3,000€ in the first year. Central is the expenditure on time and personnel (costs) that you get to save with the ERP system which is:
If you extrapolate that to one year, you get 300 hours per year. When multiplied by personnel costs of 25€ per hour, this results in savings of 7,500€ in a year.
Complaints account for 1% of the annual turnover of 300,000€, so you save around 3,000 euros thanks to the software here, too. If you also calculate with a sales increase of 2% due to improved customer satisfaction, you may increase it by 6,000€.
Also vehicle wear and fuel costs contribute to costs around 10,000€ per year, which can be reduced by 10% as the route planning is optimized by ERP software so that you can travel fewer kilometers and save fuel costs thanks to the Vehicle utilization. In total, therefore, approximately 1,000 euros less.
The The total benefit per year is therefore 17,500€.
The benefit of 17,500€ - the investment costs of 3,000€ results in an advantage of 14,500€ and an ROI of 483%. The Break-even point becomes after 2 months achieved.
The use case has shown that you can reach the break-even-point with FrachtPilot quicklier, which is specifically due to route planning. The break-even point is also an important key figure for your company and also for the banks involved. So are you still looking for a suitable ERP system for your regional direct marketing, is the FrachtPilot Just the thing for you. With unique features such as sales stand management FrachtPilot is a real all-rounder. You can test the Software directly for free or get to know us in a free webinar. We're looking forward to seeing you!
