1. Most small and medium businesses do not have sales targets or plans.
2.But, it is important for all businesses to set targets and make a concerted effort to achieve them
3. However if a business wants to earn profits over a long period, it should carry out sales which exceeda a minimum level.
4. Do you know that your business should also have a minimum daily quantity of sales?
5. You should know this specific minimum quantity of sales pertaining to your business and conduct sales over that limit if you want to earn profits from your business
6. The below steps will show you how to find this minimum quantity of sales in your business.
7. First you should understand that there is a specific amount of expenses incurred monthly irrespective of the size and type of business.
8. These specific expenses do not change based on daily sales or operational interventions.
9. These specific expenses are named as fixed costs.
10. Think about your business and find out how much your fixed costs are.
11. As an example if you conduct your business in a rented building, the monthly rent is a fixed cost.
12. Assume that you have one employee. The basic salary or wage of this employee should be added to the fixed costs of the business.
13. If you analyze carefully, there is a fixed cost even in your telephone bill.
14. Thereby, every business has a set of fixed expenses depending upon the size of the business.
15. It is important for an entrepreneur to correctly calculate the fixed expenses in his business.
16. Knowledge on the total monthly fixed costs is essential to determine the minimum sales quantity.
17. Example: Followings are the components of the monthly fixed cost of a business.
Rent for building Rs 4500/-
Salaries Rs 8,000/-
Telephone fixed rental Rs 350/-
Thus, the monthly fixed cost Rs 12,850/-
18. Let’s us assume that the product of the above business is “X”. If the sale price of X is Rs 100 and it’s purchase price is Rs 90, the gross profit per unit is Rs 10/-
19. Therefore, the business should sell 1,285 units of X over a month to cover the monthly fixed cost of Rs 12850/- .
20. When 1,285 units are sold, it covers only the monthly fixed costs from the gross profit. At this point, the business has not secured any profit but not incurred any loss.
Under this scenario:
Monthly sales revenue Rs 128,500/-
Cost of purchasing Rs 115,650/-
Gross profit Rs 12850/-
It is obvious in this scenario that the monthly fixed cost equals to monthly gross profit. This position is called the BREAK-EVEN POINT (BEP) of the business provided that it sells only one product titled X.
Quantity of sales
Cost of purchasing
-10 This is a loss situation
21. Any sale below the Break Even Point (BEP level) or break-even quantity will result in a loss to the business.
22. Sales above the BEP level will result in profits.
23. Therefore, businesses should sell more than the relevant Break Even level to earn profits.
24. Hence, sales target should be prepared daily, weekly and monthly in order to make the business profitable.