Another step with which you should be familiar when building a persuasive business case is the break-even calculation, which answers the question: “How many units do we need to sell to recoup our investment?” It is primarily used for product sales and can be determined in two easy steps.
Calculate the gross profit margin for selling one unit by taking the revenue derived from selling one unit at full retail price and subtracting the cost of goods sold for one unit. That equals the gross margin per unit.
Calculate the break-even number by dividing the net initiative by the gross margin.
For example, let’s say you’re a manufacturer partnering with a software design company to develop a point-of-sale software program for your retail distribution channel. The software company is charging you $15,000 per copy for the software, and you’re going to sell it to your retailers for $20,000. Your gross profit here is $5,000 per copy. The software company requires a minimum purchase of 100 copies in order to complete the customization required. Your initial investment is $15,000 x 100 = $1.5 million
Now, divide that $1.5 million by the $5,000 gross profit, and your break-even for this product is 300 units.
Break-even calculations are valuable because they help keep an organization headed toward a recognizable goal. The problem here (at least in terms of making a financial decision) is that break-even calculations don’t take into consideration time dedicated to the project. For that, you’ll need to do more calculations.
Master the break-even calculation and other fundamental business measures and calculations that often arise in meetings and discussions, and you’ll be well on your way to becoming a professional persuader.