I'm struggling to understand the concept of break even, could anyone please explain this example to me and how you would calculate it?


What would be the breakeven number of daily guests. If:

Number of visitors/day : 200, facility opens 7 days a week but closed on first day of christmas and new years day. Worst case 100 visitors/day. Best case 300 visitors/day.

Break even is the number of units of room occupancy you need to sell in order for the variable margin for all custiomers to equal your fixed expenses. So you first need to know what the revenue and variable cost are per night of occupancy, and also what your total fixed expenses are. For a hotel most costs are fixed - you have certain amount of staff, you pay taxes, you pay heating etc regardless of whether you have 100 guests or 200, so those are all fixed costs. But some expenses are truly variable - supplies for the rooms for example (TP, soap for the guest rooms, etc).

Obce yo know the cvariable cost per unit sold you can find the marhin generated per unit sold from

M = Margin per unit = Revenue per unit - Variable cost per unit

You can think of margin as being profit before fixed costs.

Break-even is when you sell enough units 'N' (measured in occupancy days) so that the margin generated covers the fixed costs (FC):

N = FC/M

If you sell less than N units you are losing money; if you sell more than N units you are making a profit. Break-even is the amount of units you need to sell to move from loss to profit.