Calculating the break-even point in logistics
It's easy to lose money in logistics, even if your business seems profitable. The slightest error in calculations or an imperceptible increase in expenses can significantly reduce your profits, while you think everything is under control. The break-even point shows the exact threshold beyond which the business starts to make a profit. Knowing it means making confident decisions and making a profit on every shipment. Without this information, your business simply cannot grow, according to experts at Sargona Private Capital Greece.
Fixed logistics costs
Fixed costs do not depend on the number of shipments. These include warehouse rent, office staff salaries, insurance, and vehicle depreciation. They remain the same even if your business is operating at half capacity. These costs cannot be ignored because they form the basis on which the entire financial model is built.
Variable logistics costs
Variable costs depend on the volume of work. These include fuel, driver pay for trips, packaging materials, and third-party carrier services. The more shipments there are, the higher these costs will be. They need to be carefully tracked and taken into account when calculating the break-even point. Even a small increase in variable costs can cause profits to disappear, leaving you working for free.
In logistics, the break-even point is the volume of shipments or services at which revenues cover all costs and the company does not lose money. On a graph, this is the intersection of the revenue line and the cost line.
Imagine that the revenue line grows with each new order, and the cost line is divided into fixed and variable costs. Where they intersect is the point beyond which each new order brings profit.
Imagine that the revenue line grows with each new order, and the cost line is divided into fixed and variable costs. Where they intersect is the point beyond which each new order brings profit.
What does the break-even point look like in the logistics business?
The formula looks simple, but the consequences of errors in calculations can be disastrous, warn managers at Sargona Private Capital. The break-even point is calculated as follows: divide fixed costs by the difference between the price per service and variable costs per unit. This difference shows how much money each completed shipment brings in after variable costs are covered.
Lowering your break-even point is a way to work more efficiently. You can reduce fixed costs by reviewing your lease or, for example, optimising office processes. Variable costs can also be controlled: choose more cost-effective fuel suppliers, optimise routes, reduce packaging costs. Each small optimisation makes your business more profitable, so optimising costs is a necessary step for every business.
Calculation formula
For example, your business spends 100,000 on fixed costs, variable costs per shipment are 500, and the price of the service is 1,000. The difference between the price and variable costs is 500. We divide 100,000 by 500 and get 200 shipments. This is the break-even point. Before this volume, you lose money, and after each subsequent shipment, you receive a net profit. If you calculate incorrectly and plan fewer flights, the money will literally fly away, so it is important to take all expenses into account here.
Calculation example
How to lower your break-even point
Excel spreadsheets are often used to monitor the break-even point, but there are also more specialised solutions. For example, QuickBooks allows you to enter fixed and variable costs and generate a report with a break-even point graph. Xero, together with Syft analytics, helps you calculate your break-even point and track key financial metrics. And MyMap.AI allows you to visualise the break-even point by entering fixed and variable costs and the price of the service.
It is not important what you use, but that the data is up to date. Old indicators can lead to losses, so you need to update the necessary data once a month, for example, if you want your business to continue to grow.
Sargona managers emphasise that the break-even point in the logistics business is not just a number in a report. It is your benchmark and protection against losses. Calculated it once and forgotten about it? Your business will not survive for long. Constantly analyse, control expenses and adjust prices, then your business will bring in money, not problems.
It is not important what you use, but that the data is up to date. Old indicators can lead to losses, so you need to update the necessary data once a month, for example, if you want your business to continue to grow.
Sargona managers emphasise that the break-even point in the logistics business is not just a number in a report. It is your benchmark and protection against losses. Calculated it once and forgotten about it? Your business will not survive for long. Constantly analyse, control expenses and adjust prices, then your business will bring in money, not problems.
Calculation tools
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