James and Carmine of Dependable Roofing are calculating the breakeven point in terms of the number of customer transactions it will take for them to cover the fixed costs of operating their business. Here is how this is being arrived at:

Each operating expense for the year is listed and then the amount of that percentage that is fixed is allocated.

1. The only operating expense that is not taken into account for this calculation is depreciation since it is a non cash expense.
2. Thus the operating expense for 2015 without the depreciation comes up to be $88,600. Here we are factoring in 50% of the gross wages and employment taxes for the single member of the production staff. We figure that once we hire somebody, the fixed cost of having them on the payroll for 6 months need to be factored into the break even point for the company. Salaries paid to James and Carmine are not being factored into this calculation since these can be deferred if the firm is not doing well. Bottom line employees have to be paid but owner compensation can be deferred or excluded if things can really bad.
3. The fixed component of that expense comes up to be $57,863 or roughly 65%.
4. The average cost for the typical customer transaction for each cleaning job is estimated to be $450
5. Since there is no cost of goods sold associated with the production of the service, we come up with a gross margin of 100%
6. The fixed operating expense divided by the $450 per transaction yields us a 387 transactions.
7. Thus we are estimating that Dependable Roofing will have to have a minimum of 387 transactions in 2015 just to pay the bills and come out flat - this is also before they owners
take a single dime out of the business to pay themselves.

In our sales projections we are estimating that even in a slow market environment the firm will be able to accomplish the following in sales:

1. In 2015, if the market is slow, it is estimated that Dependable Roofing will be able to successfully close on 417 transactions bringing in $187,500 in sales.
2. Likewise in 2016, given a slow market, the firm expects to serve 460 customers successfully thereby generating $213,750 in sales; and finally
3. In 2017, even in a slow market, it is expected that Dependable Roofing will close 503 transactions generating $236,250 in sales.

Thus we can say with confidence that James and Carmine will be able to meet and exceed their break even points in each year and slowly but surely build a successful business in Kent county, Michigan.

Quick Links:

1. Go to the Corresponding Template section for this industry.
2. Go to the Corresponding Questionnaire section for this industry.