48. How much do I need to increase sales if I hire a new person?

SUMMARY

How much do I need to increase sales if I hire a new person?

In this video, I explain how to use the break-even formula to calculate the increase needed in sales if you hire a new employee.

Transcription

How much do I need to increase sales if I hire a new person?

Hi, welcome. I'm just gonna give another example on a simple financial formula for fast, smarter business decisions. So if you haven't seen the previous video, I'll explain this formula in more detail.

But in this example, we're going to look at how much more sales do you need to make if you employ a new staff member?

So we're using our formula, the fixed expenses, or the operating expenses divided by the gross profit percentage. So let's say the expenses for the new person coming on, it's gonna be $110,000. So that's your fixed expenses. So then we divide that by the gross profit percentage, and in this case, let's say it's a nice, easy 0.50, or 50%. So once you divide the 110 divided by 0.5, it's $220,000. So by using this formula, you know you need to increase your sales by $220,000 for you to break even.

If your sales don't go up by that much over a year, then you're going to be worse off by employing this person. The same thing could be done for leasing a new building. If you're going to a new building, and let's say you're currently paying $50,000, let's go over here.

You're currently paying 50K, and the new building is going to cost you 110K. And nice and easy, it's 50%, so you move from one building, it's gonna cost you 100K, you're currently paying 50, so there's gonna be a 50K difference. It's gonna be increase of 50K, so that means you need to sell an extra 100K to cover that expense. So this is just a simple formula to help you make faster and quicker decisions without having to go to an accountant or to do financial modelling. Thank you.

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