Break-even analysis, also known as break-even point analysis or cost-volume-profit (CVP) analysis, is a mathematical analysis method used to forecast profits, control costs, and evaluate operational performance based on a comprehensive analysis of the interdependence among product business volume, costs, and profits.
Mike is a manager in the garment e-commerce industry with a poor business performance last year. He hopes to use break-even analysis to control the input of various costs, elevating the store's operating profit to a new level.
[Total Cost = Fixed Cost + Variable Cost][Profit = Monthly Sales Revenue - Total Cost]
Fixed Cost: Costs that do not change with increases or decreases in sales revenue within a certain range, such as rent, utilities, and labor costs.
Variable Cost: Costs that change in direct proportion to increases or decreases in sales revenue, such as sales commissions and procurement costs.
Mike only needs to enter the various cost metrics from last year into the red area, as shown in the following figure.
You can see last year was unprofitable. The monthly sales revenue needs to reach 3,509,091 to achieve break-even point under the current cost level.
Cause:
He has to pay 193,000 yuan each month, a high fixed cost.
The gross profit obtained per yuan of sales is low because of the high variable cost.
Break-even sales volume = Fixed costs / Gross profit per yuan of sales. With a high numerator and a low denominator, the required break-even sales revenue is very high.
Solution:
Reducing fixed costs: The largest e-commerce rental expense is warehouse rent. He can look for cheaper warehouses to replace the current high-rent ones.
Reducing variable costs: He can lower the pricing ratio to 0.65, so that the product pricing does not increase significantly and avoids customer dissatisfaction.
Finding a balance between the discount and profit: Although increasing the discount rate will raise costs, it can lead to an increase in sales volume and sales revenue. Mike can compare the relationship between discounts and sales last year and calculate the most profitable discounts through the dashboard to provide a reference for the promotionin of this year.
Mike can manually adjust the various cost parameters to achieve the most reasonable cost investment approach.
You should manually enter the information in this dashboard.
Parameters can be incorporated into calculated fields for dynamic computation. By binding these parameters to filter components, you can dynamically control the output values of the calculated fields. For details, see:
Dynamic Control of Result Values Through Parameters in Calculation Fields.
1. Since the calculation data is manually entered through the filter components of the dashboard, you don't actually need a dataset. However, in FineBI, you need to select a data table in creating components.
So you can select any dataset to create a new analysis subject, and add components, as shown in the following figure.
2. Click , and select Add Parameter to open the pop-up box. Rename the parameter Monthly Sales Revenue, set Parameter Type to Value, and click OK to complete the parameter creation, as shown in the following figure.
Create the following parameters: Number of Employees, Average Basic Salary, Monthly Rent, Other Fixed Cost, Sales Discount, Pricing Ratio, Platform Service Fee, Employee Commission in the same way.
Create a new calculation field Fixed Cost. Mike's fixed costs include rent, labor costs, and other fixed costs, as shown in the following figure.
Mike's variable costs include procurement costs, platform service fees, and staff sales commissions.
Procurement Cost: Retail Price (Tag Price) = Sales Revenue / Discount Rate, Procurement Cost = Retail Price * Pricing Ratio.
Platform Service Fee: For stores on e-commerce platforms (e.g., Taobao), a certain percentage of sales revenue must be paid as a platform service fee.
Staff Sales Commission: A certain percentage of sales revenue is paid to employees as commission to enhance their motivation.
Create a calculation field Variable Cost, as shown in the following figure.
At break-even point: Monthly Sales Revenue = Variable Cost + Fixed Cost. Through formula transformation, the break-even monthly sales revenue formula is as shown in the following figure.
Similarly, based on the formulas, [Total Cost = Fixed Cost + Variable Cost], [Monthly Profit = Monthly Sales Revenue - Total Cost], and [Monthly Sales Revenue= Monthly Sales Revenue], you can add the following fields: Total Cost, Monthly Profit, and Monthly Sales Revenue.
1. Take Fixed Cost as an example, rename the component Fixed Cost, select KPI Card, and drag the Fixed Cost metric into the Text column. Set Summary Mode to Average. Because you are using a data table in this analysis subject, dragging the fixed cost in this table will multiply the fixed costs by the total number of rows in this table. Therefore, you need to select Average as Summary Mode, as shown in the following figure.
Similarly, you can create other indicator cards: Variable Cost, Total Cost, Monthly Profit, Monthly Sales Revenue, and Break-even Sales Revenue.
1. Drag all the components into the dashboard.
2. Take Monthly Sales Revenue as an example, drag Value Drop-down filter component into the dashboard, and select Custom Value List. Tick Bind Parameter, bind it to the parameter Monthly Sales Revenue, and rename the filter component as Monthly Sales Revenue, as shown in the following figure.
Similarly, you can create the following filter components: Number of Employees, Average Basic Salary, Monthly Rent, Other Fixed Cost, Sales Discount, Pricing Ratio, Platform Service Fee, and Employee Commission.
After you add all filter components and set the values, the previously inactive indicator cards will calculate the values entered in the filter components and display the final results.
The effect is the same as that shown in section "Implementation Method."
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