Break-Even Point: 1000 Units/Month at SGD 50 Price (Below This = Loss)
Restaurant: fixed costs SGD 30K/month (rent, utilities, staff). Variable cost per meal SGD 8 (COGS). Menu price SGD 20/meal. Contribution margin: SGD 20 - SGD 8 = SGD 12/unit. Break-even: SGD 30K ÷ SGD 12 = 2500 meals/month. Below 2500 = loss. Above 2500 = profit. Daily BEP: 2500 ÷ 30 days = ~85 meals/day. If you sell 100 meals/day, profit = (100 - 85) × SGD 12 = SGD 180/day = SGD 5.4K/month profit.
The Break-Even Formula#
BEP (units) = Fixed Costs ÷ Contribution Margin Per Unit. Contribution Margin = Price - Variable Cost. Example: price SGD 50, variable cost SGD 30, contribution = SGD 20. Fixed costs SGD 100K/month. BEP = SGD 100K ÷ SGD 20 = 5000 units/month.
Understanding Fixed vs Variable Costs#
Fixed: rent, insurance, depreciation (same whether you sell 1 unit or 1000). Variable: COGS, shipping, payment processing (change with volume). This distinction matters for BEP: higher fixed costs = higher BEP = more risk (must sell a lot to avoid loss). Higher variable costs = lower contribution margin = higher BEP.
If BEP = 5000 units/month and you expect to sell 6000, safety margin = 1000 units (17% cushion).
BEP as a Safety Margin#
If BEP = 5000 units/month and you expect to sell 6000, safety margin = 1000 units (17% cushion). If actual demand drops 17%, you break even (zero profit/loss). <10% safety margin = too risky. >20% safety margin = comfortable (likely profitable).
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AskBiz Break-Even Calculation#
Inputs: fixed costs, variable cost per unit, selling price. Outputs: BEP in units/month, BEP in revenue, safety margin (% above expected sales). "Fixed costs SGD 30K, variable SGD 8/unit, price SGD 20, expected demand 3000 units. BEP: 2500 units. Safety margin: 500 units (16.7% above BEP). If actual sales drop 17%, you lose money. Recommendation: reduce fixed costs to SGD 25K (landlord negotiation), lower BEP to 2083 units, increase safety margin to 25%."
- Restaurant: fixed costs SGD 30K/month (rent, utilities, staff).
- Variable cost per meal SGD 8 (COGS).
- Menu price SGD 20/meal.
People also ask
How do I use BEP for pricing?
Set price such that expected volume is well above BEP (20%+ safety margin). If BEP is 5000 and expected demand is 5200, price too high (insufficient margin). Adjust down (raise volume, lower BEP cushion), or reduce fixed costs.
Should I always target profit above BEP?
Yes. Operating at BEP (zero profit) is risky (any demand drop = loss). Target 20-30% above BEP for safety. For growth, reinvest profit into expansion (which raises fixed costs, requires higher volume to cover).
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