If you’re considering investing in lifting equipment for sale, then it’s important that you ensure that there is a return on your investment. One of the most critical things to calculate in this regard is the break-even point.
This is essential for understanding when your investment will start yielding a profit.
What Is The Break-Even Point?
The break-even point is when your total income attributed to the use of the new machine equals the amount you spent to buy and operate it. From the break-even point going forward, the machine will be a profit-making asset. Prior to this point, your earnings will still go towards paying off the original investment.
The Break-Even Formula
The basic formula for calculating your break-even point is as follows:
Break-even hours = Total investment ÷ Net hourly earnings
Let’s break down how to use this formula and what each component means:
Total Investment
To work out the total investment, you need to include all the costs that are tied to acquiring and preparing the machine for work. This includes the purchase price (including VAT), insurance, as well as transport and delivery costs.
Your company might want to add some branding or safety decals, which can increase your capital outlay. If you don’t have certified operators, you will also need to pay for them to be trained and certified.
Net Hourly Earnings
You will need to have a clear idea of how much you charge per hour or per job and then subtract the cost of operating the machine.
For example, if you charge a rate of R950 per hour, with running costs of around R250 per hour for fuel, staff, and maintenance expenses, then your net hourly earnings will come to around R700 per hour.
Calculate The Break-Even Hours Or Jobs
With this information in hand, you can now divide your total investment by your net hourly earnings.
Using the example above, with an assumed cost of, say, R500,000 for the total capital outlay, your break-even hours will come to R500,000 ÷ R700, which is equal to just under 715 hours.
This means that you need to use the machine for about 715 billable hours before you can break even. Beyond that point, your earnings will contribute directly to your profits.
If you’re looking for a wide range of high-quality lifting equipment for sale, look no further than Sterling Access.
