Sales Targets are fundamental business metrics. How many units are required to be sold to make at least breakeven and then desired profit?
A friend has a gelato ice-cream shop. He phoned recently saying he was “considering” purchasing a mobile cart to sell ice-creams at markets and school fetes.
I said mate – do you think that’s a good idea – can you tell me if the cart will make the business money?
He said – “Well Rod that’s why I’m calling you -I intend for my cousin to operate the cart – but my wife thinks I should focus at the shop and not buy the cart” he lamented.
How many ice-creams does the cart need to sell – to achieve breakeven then profit. Have you set a daily sales target? I enquired. Remembering we did this for his shop!
“Selling ice-cream from a cart isn’t that technical – we should easy sell 60 cones a day” he hollered!
Ok I said – let me step you through a one day sales target calculation.
What are the operational expenses. Cart and ancillary expenses $100, cousin’s salary $100.
What’s the ice-creams sale price $3.00, cost to make one ice-cream $0.60.
Ok $3.00 – 0.60 = $2.40 this is your Gross profit per sale.
$2.40 is 80% of the sale ($3.00) so the GP% =80% .
Ok daily Expenses are Cart $100 + wage $100 = $200.00 total expenses.
Now here is the simple formula. Breakeven = Expenses/ GP%.
Therefore B/E = $200/ 80% = $250.00 (sales required to cover expenses or Breakeven).
Mate I said – can or will the cart sell $250 of ice-cream at market?
Sales of $250.00(Breakeven)/ $3.00 (sale) = 84 ice-creams.
84 sales for a 6 hour day = 14 sales per hour =1 ice-cream must be sold every 4 minutes.
Tell your cousin he must sell 1 ice-cream every 4 minute just to make Breakeven Target.
But wait a minute – selling 1 ice-cream every 4 minutes makes business no profit!
Is it possible and realistic for cousin to achieve this target selling in this particular market?
Can cousin scoop faster, he must sell more than 84 a day – I ventured with a smirk.
“Why didn’t you tell me about sales targets before I purchased the cart” my friend Bellowed!
Hey you don’t need to buy a cart or start business to work out you won’t make money!
Breakeven calculation is essential planning before you Start-up to hit the profit bullseye.
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