Even it up

Wow. It's been a while since the last post; for that I apologize. However, for the long vacation and time away from the writing/business, I do not apologize. You don't realize you're in a rut until you have gone through it and look back. My rut was deeper than the lines on my face.

With that said, and a new perspective (I'm back in the classroom again - summer always makes me stale) I can tell you that my brain has a million article ideas running through it.

One thing that often comes up in initial conversations, however, is "breaking even." For whatever reason, we tend to not worry about profits but instead, we focus on breaking even. While I'm all for capitalism, I thought that I'd tackle the very basic, easy formula for breaking even, as many of us have not been property taught.

Take out your calculator or abacus for this one folks. The sample will be easy, though. I promise.

Let's assume that you own a Pizza Parlor (it's Sunday and that's what the Ola family ate during the Steeler game.) You know that it costs you $3 in ingredients per pizza, $1 for the delivery service you supply and you pay rent of $500 per month and charge $9 for a pizza. How many pizzas do you need to sell to break even?

(sound of crickets chirping here and an anxious 'gulp.')

We hate math, don't we?

Here's the easy way to calculate this.

Take your Sales price ($9) and subtract your total cost per pizza ($3 ingredients + $1 delivery.)

That equals $5.

Divide your fixed costs ($500 rent) by this amount, so that $500/$5 appears. Voila! You need to sell 100 pizzas at $9 per pizza to break even. The fancy formula for this is nothing more than BEP= F/(S-V) if you're ever at a cocktail party and want to win a bet.

Knowing this model, however, we can then begin to work figures and determine whether or not delivering pizzas is really worth it. Too many times we add a service just because we might make a few extra bucks and not realize it's counter-productive.

For instance, you might realize that only 10% of your orders come from delivery. Just for giggles, you send the delivery guy home and do takeout only.

Your new break even point becomes $500/(9-3), or 500/6, which is 83 pizzas. This number workable, as you estimated only a 10% reduction in orders and you needed 100 to break even with the delivery kid. Send the kid home in this instance and enjoy the extra profits with fewer headaches! After all, that's why you're in business, right?

If you like what you've read and you own a pizza joint, send me a coupon for a freebie and click on the advertisers here so that I can pay the rent. Plenty of comments keep me inspired too!

Thanks and I'm happy to be back!

Pat yourself on the back if you got it without my help. If you needed my help, keep reading