Understand the idea
Your costs are of two kinds. Variable costs move with sales, like the cost of goods. Fixed costs stay put, like rent and salaries. What each riyal of sales leaves after variable costs is the Contribution margin, and that is what covers fixed costs.
Open Reports, then Break-even and contribution margin, and set the period.
Read the result
- Break-even revenue (1): the sales that cover all costs with no profit or loss, with its monthly average.
- Margin of safety (2): your actual sales less break-even. Positive means you are above it; negative means you are below and losing money.
If a message says each sale costs more than it brings in, no amount of selling covers the fixed costs. Check the classification or your prices.
Correct the cost classification
The result depends on the classification. A cost is read off the chart: direct costs are variable and indirect ones fixed, until you set the account yourself. Those accounts carry the words from the chart.
Change the Behaviour column on any account to Variable or Fixed. Salaried production staff and sales commission are the two that usually need setting. You can also set it when editing the account in the chart.
Analyse sales and purchases
Open Sales and purchases analysis from Reports. It has three tabs:
- By party: your biggest customers or suppliers and each one's share. A large share with one customer is a concentration worth watching.
- By item: quantity, net, cost and Margin for each item, so you see what really earns.
- By month: sales and purchases month by month.
Choose Sales or Purchases and set the range. Figures are before VAT.
