How to calculate a Break Even Point

Let rooms and make a profit.

Your break even point is the price it costs you to provide a service. It applies in all businesses.

If it costs you £40 to provide a service you need to sell it for £40 plus your profit, selling it for less than £40 will be selling at a loss, selling at £40 will be break even.

In a bed and breakfast you need to calculate what it costs to provide bed and breakfast for a single night for each of your rooms (they may all be the same of course).

Breakfast - what does it cost to purchase the ingredients. You can easily cost bacon, sausage, egg, black pudding, hash brown and so as individual items simply by using shop receipts. It might sound fussy but do the same for tea bags, jam portions, bread, coffee, sugar, milk and anything else you offer.

The point of the excercise is to calculate as closely as possible the cost of materials used. Now add in an allowance for your time.

Bed - do the same calculation here looking at the cost of washing powder, conditioners and so on. If you can, add an element for the cost of electricity and water.

Add all of these amounts together and you have your break even point - what it has cost you to provide the service.

Profit - now you need to work out your profit requirements. Assume that the above adds up to £40. If you let a room at £50 you wll make £10 per night. Multiply that by the number of nights you expect to let the room for and you have profit for the year on that room. Does that let you pay the bills, have money to spend and actually achieve what you wanted to achieve? If not try again with a slightly higher room price.

Then of course you need to see if that price is competitive for your area so check what others are charging. If they are all higher then you may be able to increase your own prices, and therefore profit, accordingly.

If not, then you nay be in trouble and will need to revisit your own costings again.

The theory of break even is a simple one, getting it right in practice can sometimes be a bit harder. Once you have done it once, rechecking it for future years will be easy and should become second nature.