Breakeven analysis looks different for different businesses — a coffee shop will have very different costs than a barbershop, particularly because one produces products while the other performs services.
Let’s take the coffee shop for instance and assume they have 1 kind of coffee and 1 employee. Each cup of their specialty coffee costs $5 to make (milk, sugar, coffee beans, whipped cream, etc.) and is sold for $10. The combined cost of the employee salary and rent is equal to $15,000.
Applying the formula above $15,000 / ($10 – $5), the coffee shop needs to sell 3,000 cups of coffee to cover their variable and fixed costs. The coffee shop owner can now look at this and conduct an audit to lower costs.
Questions he may ask now are:
- Can we bulk order coffee beans at a lower cost?
- Can the rent payment go down?
- Can we hire employees at a more cost-efficient rate?