Retail Break Even Analysis

Lower your breakeven point and hang on to your cash reserves.

Financial Management by David McMahon

Article in April Issue of Furniture World Magazine

During the recent recession, high exposure to risk forced lots of good retailers to go out of business. The culprit in many instances was high fixed costs relative to total costs. When consumer spending suddenly slowed, businesses were unable to respond in time. These retailers simply fell uncontrollably and quickly beneath their break-even point of sales. Losses were incurred, and eventually their cash flow dried up

Many businesses did survive the recession and remain profitable. They are the businesses that have a greater proportion of variable costs (lower fixed costs), and, therefore, shoulder less risk. You see, businesses with more variable costs in lieu of fixed costs are less susceptible to sudden changes in sales volume. Variable costs rise and fall in proportion to sales and result in a lower break-even point of sales. This gives retailers an advantage over their competition in that they have more time, or room, before their cash reserves are depleted during a sudden sales slump.

This article will demonstrate how to calculate your break-even point of sales. It will also provide some real world examples of ways smart retailers are reducing their break-even points. Finally, at the end of this article is an offer to get a free break-even calculator that you can use to improve your business.

So, what is the formula for break-even sales?

Article in April Issue of Furniture World Magazine