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And finance Allah Shmoop How do you find volume based

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break even point or margins in C v P Or

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like in plain English Where do you break even Like

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at what volume of your products Can you pay your

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rent insurance overhead salary and have just enough left over

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to pay the interest on the loan that grandmama gave

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you to start this embalming company So yeah that's what

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you dio You're an embalmer And here's your embalmer jacket

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for a thousand bucks you stick bodies on this old

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sewing machine like thing and spin Well it's basically masking

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tape around them and then dip them in this woo

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magic fluid No don't look there It's not the secret

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sauce from Jack in the box and boom They're ready

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to be you know put on display Well why do

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people embalm They like the spirituality of it You know

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you do a little ceremony Kind of like the twelfth

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century Viking meets the eighteenth century into it with a

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dash of for millennia ago Egypt thrown in Your parents

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pushed you to have a steady job maybe go to

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law school Something you could really count on once your

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rock and roll career died So you know death and

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taxes and whatever And you were really never very good

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with numbers not a big fan of paying taxes in

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the first place s So here you are You don't

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make much so you don't pay much in taxes anyway

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A customer buying the basic embalming package pays you a

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grand Sometimes it's walk in business Sometimes it's families with

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the you know wheel in business And other times you're

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just in upgrade to a funeral package Thanks in a

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big shot out there to Bob's Holy Roller House of

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Heaven in furniture shop lifesavers Well you outsource most of

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the work piecemeal to Luke Risha Here she charges you

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two hundred bucks for a full wrap old school The

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masking tape costs another eighty bucks and the secret saw

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the magic after life fluidity elixir of blah blah blah

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or whatever you're calling in this week's special Yeah you've

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got to find the newspaper coupon section for the name

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but anyway a gallon of that It's of costs one

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hundred bucks So that's your marginal world You charge a

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grand for costs of two hundred for labor Eighty for

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the tape one hundred for the goop and that's it

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Three eighty and costs six hundred twenty dollars in contribution

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for unit or unit sale The only problem Phil You

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have to refrigerate the clients sometimes for a long time

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until you can all schedule the afterlife party And there's

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always a relative stuck in some meeting or on a

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trip or something So you spend five grand a month

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on rent and then another two grand on electricity and

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maintenance and all the other storage things And yeah it's

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kind of nice to not have to carry life insurance

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anyway Steady state You basically have seven grand to make

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up in volume every month to just break even from

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your operations So how many customers buying the basic thousand

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dollar package do you need Well each customer contributes six

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hundred twenty bucks So thinking aloud here if you had

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ten of them well that had contribute sixty two hundred

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to go again through seven grand and fixed recurring costs

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Right That would get you close Oh the actual number

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Well you just divide seven thousand by six Twenty there

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The revenues by the unit contribution of profits and you

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get eleven point two So really you need a dozen

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customers a month to break even on this plan Because

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you have other expense like a phone line And you

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of course need a little bit extra for you know

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accidents or whatever Although you're thinking well like what worse

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could happen here But it's amazing what goes on here

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at night You had a family of rats break in

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one time in the after life Elixir of Love was

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well a few days ripe And oh it wasn't pretty

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So the Elixir has a formula and it's not just

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mayo ketchup in a dash of Worcestershire Sure sure Shire

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It's way more than that But this calculation has a

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formula too There are a few of them in fact

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and for context You're thinking about opening a chain of

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these places all around the country and the world You

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get cheaper prices on tape and elixir at volume and

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maybe you'll find someone needing less maintenance than Lou Krysia

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you know for less than two hundred bucks per Anyway

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you confined the break even on volume here right You

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need twelve bodies at a grand each or twelve grand

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total to get there So to calculate you took your

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fixed recurring costs of the five grand in Ran into

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grand Electric and other veils Seven grand total and you

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divided it by the unit contribution of six hundred twenty

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dollars And that's how you got the eleven point to

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when we rounded up a body Because well of course

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you can't have a fraction of a body The formula

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break even volume in units equals fixed recurring costs over

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unit contribution Or if you had the contribution margin i

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e The profit margin of your units sale fell You

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could get the answer Here is well that is the

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contribution margin here is six hundred twenty overthe ao or

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sixty two percent nice high margin business So to get

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the break even volume you need on a sales dollars

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basis while you just divide that seven grand figure you're

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fixed recurring overhead by the contribution margin figure and voila

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you get the same number Yes Third grade arithmetic Magic

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So aboutthe loan to start this thing from Grandmama Well

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she's off to a better place now and yeah that's

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her here You still have to pay off that loan

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and you want to make enough profit so you can

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go build another hundred of these stores and really make

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something of this life of yours or the next either

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is fine but you need to get started before you

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run out of time So you've set a target profit

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number for this store for the months going forward of

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four grand big up profit numbers But you also got

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a lot of free press from the you know rat

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incident What they say There's no such thing as bad

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press So you're expecting a lot of customers coming in

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and you already have a load of reservations And you're

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optimistic about your new partnerships with the US Hang Gliding

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Association and the Grand Canyon Motorcycle Jumping Association and the

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Harness List Climbers Association So your target is four grand

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a month in profit Well how do you get there

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Well you can think of a need for profit almost

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like it's just more overhead So today you have five

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grand in rent in two grand in utilities costs and

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everything else for seven grand So you've been thinking of

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yourself as an absentee owner and haven't been taking a

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really salary and you should someday But for now what

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Grandmama left you is tidying things They're covering thing things

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are paying the basics in your life anyway that seven

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grand and fix recurring overhead Then you want four grand

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a month in profits So you think you're a big

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line here as being eleven grand So what's your target

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volume then you know like at a grand a pop

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or a mom or uncle or aunt How many sales

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do you need in a month to hit your target

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profit of four thousand dollars So that's seven thousand fix

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recurring plus the four thousand of profit target That's eleven

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thousand bucks divided by the six hundred twenty dollars of

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contribution per customer And that gets you seventeen point seven

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It will round up to eighteen bodies a month All

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right not that bad A goal that's almost like one

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a day you know like the vitamin which well this

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really pale guy clearly never took a body A week

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day Yeah totally doable is a goal And your target

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sales volume Well take the eleven grand divided by the

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contribution margin of point six two and you have seventeen

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point seven there OK right so same calculation Mohr less

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just flipping around a few numbers So where do things

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get ugly here or uh well uglier What if you

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could raise prices with no diminishing of volumes like Could

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you charge fifteen hundred or two grand for a eternal

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life likeness and bliss Or what if things went the

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other way How sensitive is your pricing or set in

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a very macro micro we can kind of way How

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steep is your demand Curves like Could you charge eight

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hundred dollars and get way more customers And here's another

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thought What if your costs went down with scale like

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if you had ten shops could you get masking tape

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at half the price you're paying Would labor go up

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or down Is Lacresha a kind of one time gift

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Or is she making way more than what really market

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prices are for what you'd have to pay in the

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future to get Mohr embalmers is therein embalmers union Yeah

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Preserve our jobs or we won't preserve anything Or I'd

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like to lodge a formaldehyde complaint like those signs Do

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it well if you make more money the bigger you

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get that it be called operating leverage That is you'd

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have operating leverage if you made more profits The bigger

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you got so yes Yes There's the thinker so much

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Think about so little Actually maybe you have tons of 00:08:08.212 --> [endTime] time to think about it

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