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.
LBOS REACH BREAKEVEN
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.