Break-Even Point for Shops: How Much Must You Sell to Cover Your Costs?

Before a single shirt goes into a machine, Faisal has already committed SAR 12,000 this month to rent, wages and equipment. To cover it without a loss, his laundry must sell SAR 20,000 a month, or 800 every working day, and the rule behind that number is: break-even sales = fixed costs ÷ contribution margin ratio.

The break-even point is the level of sales with neither profit nor loss: every riyal above it is profit, and every riyal short of it comes out of your own pocket. We build the calculation from the laundry's numbers step by step, then use one table to test what happens if rent goes up, Faisal hires another worker or he raises prices.

Fixed and variable costs in a laundry

A fixed cost stays roughly the same whether the laundry handles 1,000 pieces a month or 3,000. A variable cost grows with every piece that comes in. For Faisal:

• Fixed each month: rent 4,000, two workers' salaries 6,000, depreciation of the washers and steam press 800, the base electricity and water charge 700, and licenses and subscriptions 500. Total: SAR 12,000.
• Variable per piece: detergent and fragrance 0.70, bag and hanger 0.50, extra electricity, water and steam 0.80, and the presser's per-piece pay 1.20. Total: SAR 3.20.

Depreciation spreads the cost of the machines, SAR 48,000 over five years, at 800 a month. The electricity bill is a mixed cost: part of it is due even on the quietest day, and part rises as the machines run. Split it roughly by comparing a quiet month with a busy one.

"Fixed" does not mean a cost never changes. It means the cost does not move with the number of pieces within the laundry's current capacity. Small recurring subscriptions fall into this group, so check them with the monthly subscriptions review before you build any calculation on them.

Contribution margin: how much does each piece leave?

Most of what comes into the laundry is thobes and shirts with similar washing and pressing prices, so we use an average of SAR 8 per piece. The contribution margin is what remains after variable costs. It pays the fixed costs first and then becomes profit:

Contribution margin per piece = 8 − 3.20 = SAR 4.80, and contribution margin ratio = 4.80 ÷ 8 = 60%.

In other words, every 100 riyals customers pay leaves 60 for rent, wages and the other fixed costs. Do not confuse this ratio with gross margin; the difference is covered in gross profit vs net profit. OpenStax's chapter on contribution margin shows how to calculate it per unit and for total sales.

The break-even formula with a worked example

Break-even sales = fixed costs ÷ contribution margin ratio = 12,000 ÷ 60% = SAR 20,000 a month.

Check the result: of 20,000, 40% goes to variable costs, which is 8,000. The remaining 12,000 covers fixed costs exactly, so profit is zero.

The daily target

The laundry opens 25 days a month, so the daily target is 20,000 ÷ 25 = SAR 800. That number is easier to follow than the monthly one: if today's sales are 650, you know by evening that you are 150 behind and need to make it up. Recording sales at your daily cash close turns the comparison into a daily habit instead of a month-end surprise.

Break-even in units

When you have one main product or service, divide fixed costs by the margin per unit: 12,000 ÷ 4.80 = 2,500 pieces a month, or 100 a day. If the laundry sells 24,000 this month, it is 4,000 above break-even, and its profit is 4,000 × 60% = SAR 2,400. OpenStax's explanation of break-even in units and dollars walks through both methods with more examples.

What-if table: how does the break-even point move?

Each row changes one factor and keeps everything else the same. Results are rounded up to the next riyal and the next piece:

A 500 rent increase does not mean 500 more in sales. It means about 834 (500 ÷ 60%), because every riyal of fixed cost needs 1.67 riyals of sales to cover it. A 5-point drop in margin, say detergent, bags and pressing pay rising to 3.60 per piece, raises the threshold by 1,819 without any fixed cost changing at all.

The third worker needs 5,000 in extra sales, or 25 more pieces every day, so do not hire until you see the demand that will pay the salary. Raising prices 5% to 8.40 lifts the margin per piece to 5.20 and the ratio to about 61.9%, which lowers the threshold to 2,308 pieces instead of 2,500, roughly 7.7% fewer, as long as the laundry does not lose customers over the increase. Before changing any price, check the cost of each service separately, as in the guide to item cost and profit margin.

Target profit: how much must you sell to earn a profit?

Breaking even only protects you from a loss, and Faisal wants SAR 6,000 a month left for himself. Add the desired profit to fixed costs:

Target sales = (fixed costs + desired profit) ÷ contribution margin ratio = (12,000 + 6,000) ÷ 60% = SAR 30,000.

That is 1,200 a day, or 3,750 pieces a month at 150 a day. If the machines and the presser cannot handle more than 120 pieces a day, the target is not realistic as things stand, and the question becomes: raise prices, add a higher-margin service, or accept a smaller profit?

Limits of the calculation: mixed services and seasons

The formula assumes a single margin ratio, but washing blankets, rugs and formal suits comes with different prices and costs. In that case, calculate the ratio from a full actual month: (sales − variable costs) ÷ sales. If demand shifts toward lower-margin services, the break-even point rises even when total sales stay the same. OpenStax's chapter on break-even with multiple products covers this case in detail.

Sales are not spread evenly either: the laundry is packed before Eid and quiet during the summer holidays. Calculate break-even for the whole year, and set aside enough in strong months to cover the shortfall in slow ones. Remember that break-even is a profit figure, not a cash figure. An installment on a new washer needs the full cash payment even though the formula only shows a small monthly depreciation charge, which is where a weekly cash flow forecast helps.

Plug your own shop's numbers into the formula

The laundry's figures are illustrative; the break-even point that matters is your own. Gather at least three months of expenses, label each item fixed or variable, then calculate your contribution margin ratio from your actual sales.

In Zawid Accounts you record each expense with its type and date, which makes it easy to separate rent and wages from consumable supplies. The guide to recording an expense clearly shows the steps. The app does not calculate break-even automatically, but it keeps the inputs organized so you can apply the formula yourself in minutes, and you can ask questions about your recorded data through Ask Zawid.