Break-Even Analysis – Calculate Income and Target Profit

Break-Even Analysis - Calculate Income Required to Cover Costs

Purpose

This article explains how Magnifi calculates Break-Even Income and how you can use it to determine the level of income required to cover projected costs or achieve a Target Surplus.

When to Use

Use Break-Even Analysis when you want to:

  • Identify the minimum income required to cover fixed costs.

  • Perform goal-seek analysis to plan for a desired surplus or income target.

How To

1. Understand the Break-Even Formula

Break-Even Income = Fixed Costs ÷ Gross Profit %

This shows the income required for your business to cover all fixed costs, based on your projected gross profit margin.

Magnifi’s Break-Even calculation focuses on operating results only and excludes cash items from the Balance Sheet (e.g. plant & equipment, loan repayments, or tax payments). You can add these manually as Other Inflows or Other Outflows if you wish to test different cash scenarios.

When you enter a Desired Profit, the calculation extends beyond break-even and shows the Target Income required to achieve that surplus.

2. Review Fixed Costs

Fixed Costs are expenses that stay constant regardless of income.
They represent projected costs not calculated as a % of income.

In Magnifi, Fixed Costs include:

  • Direct Costs (not calculated as a % of income)

  • Overhead Expenses

  • Other Expenses

  • Other Outflows (manually entered)

These are the total projected costs that don’t automatically vary with income.

3. Review Gross Profit %

For Break-Even purposes:
Gross Profit % = (Total Income − Variable Costs) ÷ Total Income

  • Variable Costs are projected in Magnifi as a percentage of income.

  • They change directly with sales (e.g. if income increases by 10%, these costs also increase by 10%).

This approach ensures the calculation reflects your true cost behaviour and operating margin.

4. Use Goal Seek for Target Income

You can manually enter a value in the Desired Profit cell to calculate the Target Income needed to achieve that profit after covering all fixed costs.

This is useful for setting sales or utilisation goals based on profit targets.

Tips / FAQs

  • Break-Even Analysis is based on operating costs only; Balance Sheet items such as capex or loan repayments can be added manually as Other Outflows if required.

  • If variable costs are not projected as a % of income, the Break-Even result may be distorted.