Know your break-even point
This Break-even point Info-Guide explains what break-even point is and why it pays to know your break-even point.
Break-even point analysis is used to calculate what level of income you need for your Visitor Attraction business to break-even or to make an operating profit.
Once you know your break-even point, you can calculate the number of visitors, and the average admission fee, required in order for your business to survive and be profitable.
The break-even point of a Visitor Attraction, generally, is when admission fee income equals total costs.
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- This Visitor Attraction is open throghout the year. Its busy season is June to September, during which its costs increase substantially.
- It receives approx 50,000 visitors over the year, each paying on average approx €8.50.
- A small shop / restaurant generates €160,000 per annum. With average mark-ups on products of 100%, a gross margin of €80,000 is earned.
| Visitor Attraction Example |
| |
€ |
| Annual fixed costs (eg core staff pay costs, overheads, marketing) |
|
260,000
|
| Seasonal costs (eg seasonal staff and other costs) |
|
240,000
|
| Total Costs - Gross |
|
500,000
|
| Less - Contribution towards costs: |
| Shop / restaurant income |
|
|
| Sales |
160,000
|
|
| Cost of sales |
80,000
|
|
| Gross margin |
|
-80,000
|
| Operational subvention - local authority |
|
-20,000
|
| Total costs - net |
|
400,000
|
| |
- This Attraction's break-even point is €400,000, which is the level of admission fee income required to cover all of its costs.
- At the current average admission fee of €8.50, this equates to a requirement for an annual visitor number of approx 47,000.
- At a current visitor level of 50,000, this Attraction has a small margin of safety of €25,000 income (3,000 visitors x €8.50).
What if this Visitor Attraction wants to achieve a target surplus of €35,000?
- Admission fee income will need to cover not only total costs (net) of €400,000 but also the target surplus of €35,000.
- This income must therefore be a minimum of €435,000.
- At the current average admission fee of €8.50, a minimum of approx 51,000 visitors would be needed to achieve this objective.
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- If your Visitor Attraction's admission fee income is registered for VAT, your admission fee income figure in the above calculation must be a VAT-exclusive amount.
- Dividing this by the expected number of visitors, the average admission fee rate will also be a VAT-exclusive amount.
- Add VAT to that average fee rate to get the price that the visitor will pay you.
- VAT may be recoverable on some or all of your costs - if so, the costs taken into account in the Break-even Pricing calculation will be the VAT-exclusive costs.
Use our Quick Break-even Point Calculator to calculate your own break-even point, or the level of admission fee income required in order to achieve a targeted surplus
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