Quite simple question –
What amount of sales, in Naira per month, must you achieve to reach profitability?
Both the video and post below answer this question nicely. You could watch the video and then read below to understand how best to answer that question.
First, you have to do your break-even analysis.
Your break-even point is the point where your total income or revenue is just sufficient to cover your total cost of production after factoring your regular expenses, depreciation, salaries and any other regular expenses.
The break-even point is the point where cost or expenses equals income; no net gain or loss.
Now Add One More Sale
Now add one more sale to your break-even point or amount (based on your calculations). That sale is a net gain to your business. So, your business has become profitable.
In essence, the point when your business becomes profitable is when you make that one sale. You will be required to write your total cost to become profitable as well as the period (month and year).
Note that this seldom happens in your first 3 to 5 months unless your business is trading (buying and selling). So, don't be afraid to write the exact point. It could be in 8 months, 12 months etc.
Example – What amount of sales, in Naira per month, must you achieve to reach profitability?
For example, if your fixed costs for producing 10, 000 handbags were N900, 000 per year.
Your variable costs (operating) per bag are N500 for materials, N40 for labour, N10 overhead, making a total of N550
If your selling price is N1000 for each handbag, then: N900,000 divided by (N1000 – N550) equals 2000 units.
This is the number of handbags that have to be old at the selling price of N1000 before your business can start to make profit.
So, your business becomes profitable when your income reaches N2,001,000.
You also have to determine how long (weeks, months, years) it will take you to produce and sell the 2000 units of bags. That will be the answer to the second question:
When do you expect to achieve this (how many months after receiving your first grant award)?
Why is YouWiN Asking this Question?
This exercise is important for your business:
1. It helps to determine whether your business idea is viable or not.
2. It helps to keep you in check when you are managing the finance of your business.
3. It helps you manage your cash-flow and gives direction to your business.
Next step – Get Our FREE YouWiN Training Video + YouWiN Application Toolkit
This YouWiN training video answers all the YouWiN questions from ‘description’ to ‘additional information’. It also offers additional tips for writing a winning YouWiN Application. The training was facilitated by Mr. Omotunde Adeyemi who is a business consultant, entrepreneur and YouWiN awardee.
Get the YouWiN Training Video and Application Toolkit, and you will be glad you did. It's completely FREE.
Go to beyondyouwin.com