You can have a busy month, receive plenty of payment alerts and still not have made a profit.
Imagine a small bakery that sells cakes, pastries and small chops. Orders are coming in, customers are posting reviews, and the owner proudly says, “We made ₦1.5 million in sales this month.”
It sounds good. But there is one important question:
How much did the business need to sell before it even started making a profit?
That is your break-even number.
Your break-even point is the level of sales where the money coming into the business has covered the cost of running it. At that point, you have not made a profit yet, but you are also no longer making a loss.
Many small businesses track sales but never calculate this number. That can create a false sense that the business is doing well simply because money is coming in.
Start With Your Fixed Costs
First, write down the expenses you must pay whether you sell one item or 100.
For example:
Rent allocation: ₦150,000
Staff salaries: ₦180,000
Internet and phone: ₦30,000
Electricity and power: ₦60,000
Software, admin and other expenses: ₦30,000
That gives the business ₦450,000 in fixed monthly costs.
These are costs the business has to carry before the owner can talk about making profit.
If you run your business from home, you may not pay shop rent, but you may still have fixed costs such as staff salaries, internet, subscriptions, equipment payments, transport retainers or other recurring expenses.
The point is to know what your business must pay every month before sales even start.
Work Out What One Sale Really Leaves You
Now let us say the bakery sells a particular cake for ₦10,000.
It costs ₦6,000 to produce each cake after ingredients, packaging and other costs that increase with every cake produced.
That means:
₦10,000 selling price – ₦6,000 direct cost = ₦4,000
That ₦4,000 is what each sale contributes towards covering the business’s fixed expenses.
Now divide the monthly fixed costs by that amount:
₦450,000 ÷ ₦4,000 = 112.5
Since you cannot sell half a cake, the business needs to sell about 113 cakes in the month just to break even.
That changes how you look at sales.
If the business sold 80 cakes, it may have been busy, but it still did not sell enough to cover its full cost structure.
Turn Your Break-Even Number Into a Sales Target
“Let’s try to sell more this month” is not a very useful business target.
“We need to sell at least 113 cakes this month before we start making profit” is much clearer.
You can break that number down further.
If the bakery operates 26 days in a month, 113 cakes works out to roughly four or five cakes per working day.
Now the owner can ask better questions.
Are we generating enough enquiries to achieve this? Do we have the capacity to produce that many? Do we need more customers? Should we increase prices? Can we reduce some costs?
Once you know your break-even number, your sales target stops being guesswork.
What If You Sell Different Products?
Most businesses do not sell only one thing.
A restaurant may sell meals, drinks and snacks. A fashion business may sell dresses, shirts and accessories. A consultant may offer different service packages.
In that case, you can work with your average gross margin.
For example, if your monthly fixed costs are ₦450,000 and, on average, 40% of every naira you make remains after the direct cost of delivering the product or service, your approximate break-even revenue would be:
₦450,000 ÷ 40% = ₦1,125,000
That means the business needs to make roughly ₦1.125 million in monthly sales before it covers its fixed costs.
Anything above that begins to move the business into profit, assuming the costs and margins remain the same.
Recalculate When Things Change
Your break-even number is not something you calculate once and forget.
If your rent increases, suppliers raise prices, electricity costs go up, you hire another employee or you change your selling price, the number changes.
That is why it is useful to review it regularly.
A target that worked six months ago may no longer be enough today.
Even a small increase in cost can affect how much you need to sell before the business becomes profitable.
Final Word
Revenue tells you how much you sold.
Your break-even number tells you when those sales actually start working for you.
So this week, sit down with your figures. Add up your fixed expenses, work out what each sale contributes after its direct costs, and calculate the minimum you need to sell.
Because before asking, “How much profit did we make?”, every entrepreneur should first know the answer to this:
“How much do we need to sell before we make any profit at all?”
