Lessons

The number of units that pays your fixed costs

What it is

How many units you must sell each month before the line earns anything at all.

Why it matters

Sell fewer than that and the month costs you money, however busy you are. Sell more and almost all of the extra is margin. It is the sharpest line in small business, and most people running one have never worked it out.

The method

Fixed costs divided by margin on one unit. Round up. If the margin is zero or below there is no such number. Selling more only makes the loss bigger. The price or the cost has to move first.

Example

PKR 45,000 of fixed costs divided by PKR 380 of margin is 119 units. At 300 units a month he is comfortably past it. At 100 he would have been losing money while working hard.