How much revenue must a new location generate to break even?

Put revenue and costs on a consistent basis

Define the location, month and channels first. In the example below, amounts exclude VAT and net sales means sales after the returns and allowances recognised for that period. Net sales are not the same as gross orders or cash already received.

Variable costs change with sales: merchandise costs, sales-linked channel or fulfilment charges and other per-sale costs. Fixed spending applies within the expected operating range, such as rent and staffing. Separate the fixed and variable components of a contract with a minimum fee plus a commission. If activity exceeds the current capacity, staffing and space can step up rather than remain fixed.

Calculate the contribution margin as one minus the variable-cost percentages. With a positive, stable margin and sales mix:

Monthly net sales needed to cover the listed fixed costs = monthly fixed costs ÷ contribution margin.

This is a management estimate. If depreciation, financing, income tax, headquarters allocations or other expenses are omitted, the result is not a full net-profit break-even point. The US Small Business Administration's break-even guide explains the relationship between fixed costs, variable costs and sales prices; it supplies the general analytical method, not China-specific tax rules.

Example: a new company-operated location

Assume a consumer-goods business budgets the following monthly spending within its planned capacity: rent and basic utilities RMB 180,000; staff and employer costs RMB 350,000; fixed outsourced and administrative services RMB 120,000; and a monthly marketing package that does not vary with sales RMB 100,000. Total fixed spending is RMB 750,000.

Suppose variable costs are 60% of net sales for merchandise, 10% for sales-linked channel and fulfilment charges, and 5% for other per-sale costs. The contribution margin is therefore 25%.

RMB 750,000 ÷ 25% gives RMB 3 million in monthly net sales to cover the listed fixed spending. At RMB 4 million of net sales, contribution before fixed spending is RMB 1 million; after that spending, RMB 250,000 remains. Depreciation, interest, income tax and headquarters costs have not been included, so that remainder is not net profit.

Model the ramp-up, not only a steady month

Keeping those assumptions fixed, suppose net sales in the first four months are RMB 1.5 million, 2.2 million, 2.8 million and 3.5 million respectively:

Amounts below are in RMB thousands. Monthly contribution is after the listed fixed costs.

The fourth month exceeds the operating threshold, but the earlier contribution shortfall is not yet recovered. The lowest cumulative contribution is a planning indicator, not automatically the bank cash deficit. Prepare a separate cash schedule for actual customer receipts, supplier payments, payroll, rent, taxes and debt principal.

If fit-out and equipment require another RMB 1.5 million before opening, list that opening payment separately from the relevant depreciation or amortisation and inventory purchases. Do not treat the full fit-out payment as a monthly expense and then deduct depreciation again. Depreciation is not in the monthly costs above; the RMB 3 million threshold does not cover every accounting cost, and the table alone cannot establish the total funding needed.

Stress-test the decision

Change the product mix, return assumptions and selling charges together. If the contribution margin falls to 20% while listed fixed costs remain RMB 750,000, the required monthly net sales rise to RMB 3.75 million. If another warehouse or team is required at a higher sales volume, use a separate fixed-cost tier for that volume.

Finally, put the slowest realistic receipt dates beside payroll and supplier due dates. Forecast sales support a scenario comparison; they are not money already received. The cash planning guide covers the timing question in more detail.

CaiGeek is an AI financial assistant for small and medium-sized businesses. Ask it to compare sales mix, cost budgets, ramp-up scenarios and payment timing using the business's records; management and finance staff review the assumptions and decisions. The contact page explains the available product and service routes.