I’m trying to get my mind around my finances and want to put this in terms I, someone who isn’t bad at math but isn’t super, can understand. Something like the title says - for every dollar I spend in X service area of my business, I get $Y back."
So for an area of my business, let’s say that I sold $100,000. With COGS and salary, it cost me $40,000. My gross is $60k, or 60%.
So back to my question, in this case is it “for every $1 I spend in this area, I get $1.40 back”? I just can’t get me head around this, so thanks for the help.
** and yes, I know there are more things to consider like other overhead and operating costs, but I’m trying to keep the example simple.
It might help to use basic financial statement.
Volume 100,000
Price $10
Gross sales $1.0 million
Cost of goods (truly variable cost)
Credit cards $30,000
Supplies $150,000
Utilities $50,000
Maintenance $25,000
Returns $10,000
Total COGS $265,000 (26.5% of sales)
Margin $735,000 (sales – COGS) 73.5% of sales
Operating expenses
Advertising $24,000
Insurance $12,000
Labor $200,000
Management $52,000
Total OP $288,000
NOI $447,000 (margin – OP) 44.7% of sales
NOI less debt and depreciation = net profit before taxes
COGS ($265K) / volume (100,000) = $2.65 unit variable cost
Fixed cost is total OP. Since price $10 (or average sales) is known, you can calculate breakeven.
Breakeven = fixed cost ($288K) / price ($10) – UVC ($2.65)
Breakeven = 39,344 units