I am trying to to find the breakeven cost for running the business. Can’t see a report that would allow me to show what my operating expenses are.
How much money do I make from each client? Is there some way that I can work out how much profit is generated per client?
The Profit and Loss Statement does this. Depending on your chart of accounts, cost of goods sold would normally be separated from operating expenses, but that is a matter of categorization. To know what you need to make to break even in a specific upcoming period, you need a budget. Manager doesn’t provide that yet, but it is coming.
This starts to be pretty sophisticated sales analysis for a free accounting program. I think you’ll have to wait for custom reports to mature a little more.
What do mean by breakeven cost? e.g. the cost to run the business before any sales.
By using grouping In your P&L you could analysis how your business is performing. Basic grouping could be Sales, COGS, Operating Expenses, Fixed (or Overhead) Expenses. The P&L would appear like this:
(total) Gross profit before expenses
(total) Gross profit after operating expenses
(total) Net profit
Hopefully your Gross profit after operating expenses exceeds your Fixed Expenses
Fixed Expenses would be those items that don’t change regardless of sales. For example, the telephone line rental could be a fixed expense and the telephone calls an operating expense. Similarly with vehicles, rego/insurance a fixed expense and fuel/servicing an operating expense
Once you know your fixed expenses you can then calculate the cost recovery required. e.g. if fixed expenses total 10,000 and you project to sell 4,000 items then the pricing of each item should include 2.50.
Per sale or per period
For per sale, you could case study a typical client or selection of. Calculate their Gross profit (Sales - COGS) then deduct (Number of sale items X per item expenses) Per item expenses = total expenses to date divided by total items sold to date. If you charge + postage, then don’t include postage expenses in your total expenses
Ok thanks for the input @Tut. I will wait until the Budget functionality comes in as I think that this is chiefly what I need.
Thanks for confirming that its not possible to calculate profit per client. I had a feeling that was the case.
Of course, you can play whatever analytical games you want. But you would face the problem of deciding how to allocate both fixed and variable overhead costs to the individual customer. And as soon as you did that, the customer would go out of business, or reach a higher sales plateau where you might have offered a bigger discount, or merge with another customer, or…
The question of predicting with any confidence what a given customer will buy in the future faces most businesses that try to forecast. Methods abound, including scaling from previous periods’ sales, projecting project by project, and so forth. I once went to work for a Fortune 200 company that was enormously proud of its financial projections, which were based on detailed probabilities on a project-by-project and customer-by-customer basis. Every year, performance tracked right up the forecast graph month by month. But I looked backwards at the previous three years’ forecasts and actuals and discovered that, on average, 94% of our revenue and profit came from sources that had not appeared in the forecast at the beginning of the year. That means most of January’s sales were not predictable the preceding December. But long-term growth trends in both income and expenses were as predictable as night and day. There are times when it is more important to look at the forest than the trees. You have to decide where to put your effort.
Very true. This is my one weakness with accounting software. I don’t know what questions to ask the program But essentially you are correct, one needs to predict long term growth trends. The point about working out which customers are the most profitable and least profitable is that it helps to target your market a bit better.
Very true. But basing your market approach on a single customer may be too narrow a focus. A few sectors might be more worth the effort, as you won’t be swayed by a single large purchase that is never repeated. And you won’t overlook similar potential clients.
I understand that. I am not looking just at which client generates the most/least income. Its all abut tracking trends really. End result, I want to find out what generates income bottom line!
The position put regarding variable & fixed was a frame work relating to the whole of the business moving forward, not in relation to any historical review of an individual customers. In fact, managing a business with appropriate expense allocations, provides a solid basis for any future budget modelling.
The financial case study (not market research) of select customers has absolutely nothing to do with yesterday customer being tomorrows customer, but everything to do with understanding which pricing/product mix gives greatest value to the bottom line. Once understood then the business can focus on the core profitable products/services.
Your thinking is right on the money and shows business maturity. Chasing sales for the sake of volume/revenue could be at the expense of net profit. One could reduced turnover but increase profit by applying that business understanding.
yes this is the focus of my reporting analysis. You just put it more eloquently than I did.