Achieve a lower break-even point

Question:

Do you ever wish your break-even point was lower?

At The Alpha Group we make certain that you calculate your break-even point and then plan to achieve a lower break-even through both lower fixed costs and higher % gross margins.

So, how does this happen?

Easy, its a six step-process using the power of the peer-to-peer advisory board.

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Firstly the peer-to-peer advisory board help you Calculate and assess your break-even sales & % break-even.

To calculate your break-even (in sales) divide your fixed costs by your gross margin % (e.g. If your fixed costs are 300k and your gross margin is 30%, then your break-even sales need to be 1m). If your annual sales are 1.2m, then your % break-even is 1.0 ÷ 1.2 x 100% = 83%.

Currently Where you want to be in 6 months

a) Your annual fixed costs_____________

b) Your % gross margin________________

c) Your annual break-even sales __________

d) Your current total annual sales________

e) Your % break-even is c ÷ d = _________ %

Assess your company by reference to your % break-even.

< 50% - Great

50%<60% - Good

60%<80% - OK

80%<90% - Vulnerable

90%- Suicidal

• Where is your company currently?

• Where do you want your company to be in 6 months?

Secondly the peer-to-peer advisory board help you decide your preferred options to lower your break-even.

There are two main ways to reduce your % break-even: reducing your fixed costs and increasing your % gross margin. Review some of the potential options for you below and write your own additional options. Then assess your options using the scale 1 to 10 (where 1 is low potential and 10 is outstanding potential). Identify those of your options with a potential of 8 or above.

Reduce your fixed costs

1 Reduce your office overhead costs

2 Increase staff productivity/efficiency

3 Reduce staff costs

4 Reduce staff numbers

5 Change to cheaper suppliers

6 Out-source some activities to other domestic companies

7 Out-source some activities to low cost countries

8 Use spare staff time e.g. to create contact lists

9 Reduce waste. Recycle & reuse

10 Reduce spending on luxury items

11 Reduce building costs

12 Reduce marketing spend

13. Develop processes to provide web or telephone-based sales

14 Develop strategic partnerships

15 Make “down time” productive

16 Reduce sales turnover (Pareto: 80% profit comes from 20% of sales)

17 Use spare staff time to sell

18 Out-source everything and go fishing

19 Obtain preferred supplier agreements

20 Reduce utility costs e.g. price paid per kw and reduce usage

21 Reduce new build development costs

22 Get three quotes

23 Out-source distribution

24 Obtain grants

25 Get an outside-in perspective

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Increase your % gross margin

1 Increase your selling price(s)

2 Reduce your cost price(s)

3 Reengineer your services/products

4 Repackage your services/products at different price points

5 Launch higher gross margin products/ services

6 Reduce your low profit customers

7 Achieve sales from more long-term ideal customers

8 Sell your spare capacity, e.g. office space

9 Improve your processes & efficiencies

10 Increase your sales volumes

11 Launch your branded services & products

12 Resell your one-off developments as generic services & products

13. Convert your know-how into books & packages

14 Make better use of technology to speed up processing times and reduce duplication of effort

15 Change mix of marketing spend

16 Develop strategic partnerships

17 Sack low profit clients

18 Sell high margin products

19 Improve conversion rates in sales

20 Compress the sales cycle

21 Improve customer satisfaction & retention

22 Improve marketing ROI (Return on investment)

23 Reduce cost of sales

24 Increase your referrals

25 Sell more strategically

26. Make quality control improvements

27 Standardise project specification to reduce variable costs

28 Out-source distribution to gain more coverage

29 Up-sell other products and services

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Thirdly the peer-to-peer advisory board help you evaluate the likely benefits to your company.

What are the anticipated benefits to your company of your two preferred best options?

Your preferred options

THE LIKELY IMPACT ON: Your anticipated % gross margin

THE LIKELY IMPACT ON: The anticipated fixed costs

1.

a) Highest (HLRA) %

b) Lowest (MALS) %

a) Highest allowable

b) Desired lowest

2.

a) Highest (HLRA) %

b) Lowest (MALS) %

a) Highest allowable %

b) Desired lowest

HLRA = Highest Level Reasonably Achievable

MALS = Minimum Acceptable Level of Success

What are the likely financial benefits to your company i.e. how will this affect your break-even and % operating profit?

• Your break-even sales

• Your % break-even

• Your % operating profit

Fourthly the peer-to-peer advisory board help you Plan how to lower your break-even.

What are your key actions to implement your preferred options?

Your preferred options

Your 2 key actions to implement this option

1)

a)

b)

2)

a)

b)

What are your strategic conclusions on the above?

Lastly the peer-to-peer advisory board help you take massive action.

The profound impact on you and your company of achieving a lower break-even point is that within 12 months, through your lower break-even, substantially increase your operating profit.