Definitive Business Plan, Second Edition, The

How many coconuts do you need to sell?

After the stress of reading about unfamiliar statistical terms, our discussion now becomes really easy again. Every reader of your business plan wants to know how much you have to sell to break even. You break even when you just cover the costs of buying or making the product and other operating expenses (indirect costs such as office rental, administration fees and so on).

Here is a real-life example. Suppose that you sell coconuts at the roadside. You buy them for one peso each and sell them for five pesos. Your gross profit is four pesos a coconut. You have to sell 20 to break even – to cover the 80 peso operating costs of renting the stall each day. The 21st coconut starts earning you net profit.