I thought I'll add this in from an earlier newsletter we sent out about fixed costs :
When you are preparing your break-even analysis the main objective is 'when will I cover my fixed costs' - this is breakeven - ie: when you make no profit and no loss - you simply cover all of your costs.
Your next objective will be to see when you make your desired profits!.
But what of your costs are fixed.
Peter Hale had a recent conversation with one of our clients when he was preparing his P&L to discover those costs that are really fixed. Let's take that question in reverse :
Your variable costs are :
IF you made one more sale tomorrow what costs would change?
Everything else is fixed. Here are some examples :
Rent
Rates
Salaries
Accountancy costs
Most marketing costs
These costs would not change whether you made 0, 1 or 10 sales today. Variable costs would be directly associated with that one sale :
Raw materials
Commissions
Online bank charges (per sale)
Delivery costs
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