Business Analysis

Reaching The Breakeven Point

The breakeven point is when business sales cover expenses. It is usually after reaching the breakeven point that a business is considered to have passed the first threshold of sustainability.

The breakeven point = Fixed Costs / (Price – Variable Costs).

By November 2014, 246 out of the total 329 Latrine Business Owners (LBOs) (75%) had achieved breakeven, a good sign for the latrine business in general. Of the 198 LBOs with Sanitation Teacher (sales agent) sales, 173 (87%) had achieved breakeven.

In some cases, where investment is low, an LBO reaches the breakeven point very quickly, while high costs or low profit margin can reverse the scenario. Whether measured in units sold or time (i.e. how long will it take, in months or years, before reaching breakeven point) the breakeven period varies from business to business, depending on the LBO’s level of capital investment, operating expenses and sales performance.


LBO Duong Sitha from Svay Rieng is a top performer in terms of monthly sales, with an average of 75 units sold per month. His charges $41 per unit but his margin is very low – only $3.96. His high operating expense ratio (0.90) means out of every dollar of revenue he makes, 90 cents is the cost of goods sold. Consequently, it took him 18 months and a large number of units (2,068) before he reached the breakeven point.

Chan Sokh from Prey Veng sells fewer units per month, averaging 12 monthly sales. However, he sells his latrines at $61/unit, and has a comparatively low operating expense ratio (0.59), resulting in a high margin of $25. He reached his breakeven point of selling 51 units in the first quarter of his business, when he sold a total of 56 units.

Bea Sambath (Prey Veng) and Bob Hing (Siem Reap) charge similar unit prices ($55 and $54 respectively) and have very close margins ($20 and $21). Yet because Sambath sells 30 units on an average, his breakeven point was 19 units while Hing had to sell 60 units before he reached that point.

Sustainability of the LBO Business

While the ratios spell financial success for a large number of the LBOs, sustainability must be viewed through additional lenses. This means looking into other data points and issues, such as: how many LBOs are still actively involved in the business? How many have dropped out of the project and how many have sold off their business altogether? What stands out in the profile of the active versus inactive group? What are the different categories making up the inactive group? How many have reached breakeven?


Even after reaching the breakeven point, not all LBOs continue selling.  In fact, from among the 246 LBOs who have reached breakeven, only 50% have continued selling to date, while the remaining 50% have opted out. However, this does not mean those who have stopped selling have done so as soon as they reached breakeven. However, it does show that even after turning a profit, many LBOs eventually stop selling.

An ‘active’ LBO is one who has made a sale in the past 6 months (as of October 2014), while an inactive LBO has no recorded sale in that period. Currently, out of the 329 LBOs, 138 (42%) are active while 191 (58%) are inactive.

In fact, it is quite evident that a large number of ‘successful’ LBOs (businesses with commendable achievement in sales and a high monthly profit) are currently inactive. Thus good sales and high profit margin are not necessarily the right indicators guaranteeing sustainability. Of course, the majority of the inactive LBOs are the ones who have gone out of business due to poor performance in sales. Roughly put, around 30% of the inactive LBOs have been doing very well when they decided to discontinue for various reasons; the remaining 70% have done poorly overall and it made more sense for them to stop and look for some line of business that would be more financially rewarding.

Measuring Latrine Business Performance

Gross Margin

Gross margin is generally calculated as:

Gross Margin = Net Sales – Cost of Goods Sold

For measuring gross margin per business per quarter Gross Margin = (Number of latrines sold * sale price of each latrine) – (number of latrines sold * per unit cost of raw material and labor).

The gross margin is important since it measures the first level of profit earned by the Latrine Business Owner (LBO).

None of the LBOs (except one whose cost exceeded revenues) incurred any loss, with the gross margin ranging from a minimum of $4 to a maximum of $32,961 per quarter.

Operating Profit

Operating profit = Gross margin – overheads (or operating expenses) – depreciation and interest

Data for depreciation of machinery (which is very challenging to determine considering the same machinery is used for other purposes) and interest paid on loans have not been collected. Thus these have not been factored in the calculations, and instead of data for overheads, weighted average of commission for Sanitation Teachers and transport costs were included as ‘operating expenses.’

Thus in this case operating profit is calculated as:

Operating profit = Gross margin – (sales commission + transport cost)

This calculation gives the actual profit made by the business, since all the major costs are deducted from it. Whether the profit made is reinvested in the latrine business is another issue that needs to be tackled in the future.

Most of the LBOs made a profit, ranging from $4 to over $31,246 per quarter.

Operating Profit Ratio

Operating profit ratio = operating profit/net sales

This is important since the resulting ratio indicates how many cents of profit LBOs generated from every dollar of sales.

Figure 39
Sanitation Teachers Boost Sales

The project introduced sales agents called Sanitation Teachers (STs) to professionalize sales.

There is a clear correlation between successful Latrine Business Owners (LBOs) and involvement of sanitation teachers (see the chart above). Taking the top and bottom quintiles for example, 6 different STs support a top-performing (Tier 5) LBO at different stages of the business cycle, while only 1 ST serves a Tier 1 LBO.  Since a Sanitation Teacher does not consistently engage with an LBO throughout the year, the average active ST/month is not a whole number. (E.g. an ST may work 5 out of the 12 months in a year with a particular LBO- in that case the average active ST per month is 0.4).

With more sanitation sales agents, there is a dramatic rise in scale.

The chart below shows the benefits of having more sales agents involved. For example, in Quintile 4, the average monthly sales per active ST is 22 units, and LBOs in that tier have 0.6 STs per month on average. Thus the average monthly sale through STs is roughly 13 units per month (22 sales a month times 0.6 STs per month), representing more than half the monthly sales.

Figure 40_2

Table 25
Latrine Business Characteristics and Sales


While 108 out of the 329 Latrine Business Owners (LBOs) (33%) took financing for their business, most of the LBOs who took financing fall in the middle or upper quintiles. A larger percentage of the better performing LBOs tend to take loans since they are invested in their business, comfortable taking risks, and willing to buy on credit from suppliers.

LBO Training

191 LBOs (58%) finished all three components (technical, sales and business) of the core training provided by the project. Of the LBOs that completed core training, 46% were in the upper two quintiles for monthly sales, whereas 27% were in the lower two quintiles.

Parallel Income Source

103 LBOs ( around 30%) reported a parallel source of income besides sanitation. Some of the more common occupations include farming and supplying construction material.  This table shows that there is no particular correlation between the additional income source and LBO performance (based on monthly sales).

Capital Expenditure

In terms of capital expenditure (percentage share in the total capital expenditure for the latrine business) there is some degree of correlation. It is evident that the top performers have invested the most in their business while the bottom quintile performers tend to invest less in capital expenditure. This is understandable since many of the higher quintile LBOs have taken larger loans to finance their business, often to buy equipment and materials.

Duration of Business

The more successful LBOs have invested more time in their business (21 months on average) while the less successful ones have spent only about 12-15 months. Many of the lower quintile LBOs have become inactive before even lasting a year in the business.

Why Do Some Latrine Business Owners Drop Out?

Even though it appears that the sanitation business is generally profitable, there have been a large number of ‘dropouts’. 191 of the 329 Latrine Business Owners (LBOs) engaged by iDE (58%) are no longer active. A significant portion of the currently inactive LBOs were quite successful. They had a good sales record and had become quite profitable before deciding to discontinue latrine sales.

Profit potential alone may not be a strong enough incentive to continue with the latrine business.

Qualitative research suggests possible reasons for this:

  • Latrine sales are seasonal. In many cases, sales peak twice a year: after the Cambodian New Year in April and after harvest season (this varies depending on the region). Some LBOs are only interested in producing heavily at those times, focusing on other more profitable activities during the rest of the year.
  • Some LBOs were supported through subsidized sales, usually through an NGO-run project, with sales guaranteed at a fixed (generally high) price. Once the subsidy project is over, LBOs find it difficult to turn a profit, which often leads to the discontinuation of sales to focus on other business activities.
  • Some LBOs may have found other, possibly more sustainable sources of cash income (i.e. diversifying their portfolio with multi-season products/services). SMSU’s value to the LBOs is that latrine sales provided them with consistent, easy access to cash. Once LBOs find new sources of sustainable income, the value of continuing latrine sales begins to diminish.
Figure 37
Profitability of Latrine Business Owners

In order to assess Latrine Business Owner (LBO) performance in terms of revenue and profitability, LBOs were divided into quintiles based on monthly sales.

Being an LBO is generally profitable.

The sales data and revenue suggest that the sanitation business is profitable. Out of the 329 LBOs the project has worked with, 246 LBOs (75%) achieved breakeven with their latrine sales, which bodes well for the latrine business in general, since the next stage is turning a profit.

Currently, 90% of active latrine businesses are profitable.

The table below shows the average sale price charged at each quintile. The top performing LBOs (who sell around 70 latrines per month) charge the highest sale price, earning total revenues of $3,904 and a monthly profit of $1,323. The bottom performers only have an average profit of $22 (they sell around 2 latrines per month). In the middle (Tier 3) are LBOs who make an average profit of $157 (selling around 13 latrines per month).

Table 21