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The one number you must clear
Ask most owners 'what do you have to make this month to be safe?' and you get a shrug. Without that break-line, you can't tell a survivable month from a fatal one until the account is already empty.
A business doesn't need to be huge to succeed — it needs to reliably clear its Target Monthly Revenue: everything you must pay out each month, plus enough to make your time worth it. Below the line is work to do; above it is sufficiency. Aim for enough, not endless more.
- List every fixed cost you owe monthly whether or not you sell: rent, salaries, utilities, subscriptions, loan payments.
- Add your own minimum pay — the amount that makes the work worthwhile for you.
- Add the average variable cost of the sales you'd need (materials, hourly labor) to reach that revenue.
- The total is your break-line. Write it on the wall and check every month: above it you're sufficient, below it you have work to do — and you know it early, not when the account is empty.
Rent 6,000 + salaries 12,000 + utilities and subscriptions 2,000 = 20,000 fixed. Add your own pay 8,000 and variable costs of about 10,000 to hit the target: your Target Monthly Revenue is roughly 38,000. Anything less is a warning, not a mystery.
Split your costs in two, because they behave oppositely. Fixed costs (rent, salaries) are owed no matter what you sell — they set your break-line. Variable costs (materials, hourly labor) only exist when you produce. Cutting a fixed cost saves the same amount every month; cutting a variable cost is multiplied by every unit you make.
A Harvard MBA tells a content fisherman to work harder, buy boats, build a factory, move to the city, and in 20 years go public and get rich — so he can finally retire to sleep late, fish a little, play with his kids, and sip coffee with friends. The fisherman already does exactly that, today. Once you clear sufficiency, more revenue may buy nothing you don't already have.
The classic killer is signing a big lease and hiring against optimistic projections, locking in a high break-line that must be paid in the very months revenue disappoints. Low overhead isn't stinginess — it lowers the number you must clear and buys you time and options, the two things a young business needs most.
Turn 'are we okay?' from a feeling into a number. Calculate your Target Monthly Revenue once, keep your overhead low so that number stays small, and you'll always know months ahead whether you're safe.
Add up every fixed cost you owe next month, plus your own minimum pay. Write that single break-line number where you'll see it daily, and compare your running sales to it from now on.
Without looking back: name the two ingredients of your Target Monthly Revenue, and say which type of cost — fixed or variable — sets the break-line you must clear before you earn a dinar.
Read the Money