Difficulty calculating breakeven point on a service business

Joined
Apr 27, 2023
Messages
1
Reaction score
0
Country
Brazil
Hello! I am looking for a solution to a problem I am having and decided to sign to the forum for help. A firm asked for their breakeven point value. Not a difficult thing by itself, but there is a situation that is giving me a headache trying to figure out.

Without going into specifics, their commission rates for the employees are extremely different and do not have the same calculation basis. In fact, some are based on future values, others are accrual based and another is cash based. Their commissions are, by far, the main source of their expenses.

This means that their variable expenses are wildly different. In fact, it could be theoretically higher than the accrued total received, while other times they could represent a small percentage of all variable expenses.

Thus, I have no idea how to calculate the breakeven point, since the contribution margin could be wildly different between months. Is there a way to calculate the breakeven point in a way that represents the reality of the firms spendings? Is it possible to create a monthly calculation that shows how much commission they are paying per month in percentages?
 

DrStrangeLove

VIP Member
Joined
May 27, 2022
Messages
184
Reaction score
31
Country
United States
This is an interesting problem.

How do they determine which commission structure applies to a given combination of the employee, the service, and the client? If you know those three things, do you know the commission structure? That would let you create maps between (employee, service, client) --> (commission form, commission parameters) --> commissions payable.

From there, for a given sales mix (of services and clients), you can calculate the commissions that would result from that mix. Then repeat for a wide range of reasonable sales mixes. With enough scenarios, that will give you a reasonable range of contribution margins per month. Or a Monte Carlo simulation of the sales might work, but that would depend on a bunch of things.

The breakeven for each one would be easy to compute from there, giving you a reasonable range for the breakeven point.

I'm just spitballing, but that seems to me to be a reasonable approach.
 

Ask a Question

Want to reply to this thread or ask your own question?

You'll need to choose a username for the site, which only take a couple of moments. After that, you can post your question and our members will help you out.

Ask a Question

Members online

No members online now.

Forum statistics

Threads
11,756
Messages
27,803
Members
21,757
Latest member
K.SAT

Latest Threads

Top