A full order book can hide a business model that cannot cover its fixed costs within the available hours. Working harder may improve the result and still fail to make the model viable.
That is different from the timing problem in revenue versus cash. Here assume customers pay promptly and ask whether the work produces enough contribution in the first place.
Start with contribution, not turnover
Illustrative workshop: each job sells for £200 and uses £80 of materials and other genuinely variable costs. Contribution is £120 per job. Monthly fixed operating costs are £6,000, including the assumed cost of regular staffing. Capacity is 60 jobs a month.
| Monthly jobs | Contribution | Result after £6,000 fixed costs |
|---|---|---|
| 40 | £4,800 | −£1,200 |
| 50 | £6,000 | £0 |
| 60 | £7,200 | £1,200 |
Break-even is £6,000 ÷ £120 = 50 jobs. This is the basic relationship explained in ACCA's cost-volume-profit guide. Our numbers are original illustrations, not ACCA's case study. VAT, tax, finance costs and unusual one-off costs are excluded; the staffing and cost definitions must be consistent in a real business.
A job with positive contribution helps cover fixed costs while capacity is available. It is wrong to say that every extra job loses money merely because the average result at 40 jobs is negative. It improves the result by £120 under these assumptions.
See what a discount does to capacity
Cut the price to £180 while variable cost stays £80. Contribution falls to £100 and break-even rises to 60 jobs. The workshop must now run at full stated capacity just to cover fixed costs. There is no room for cancellations, rework or downtime in that simplified target.
A further cut to £170 gives £90 contribution and requires 66.67 jobs, so at least 67 whole jobs. That exceeds capacity. “We will make it up on volume” is no longer an operating plan unless capacity, costs or the mix changes.
Alternatively, £210 with unchanged costs gives £130 contribution; 50 jobs produce £6,500 and a £500 result. Whether customers will accept that price is a commercial question, not something the spreadsheet can assume into existence.
Give scarce hours a price
Suppose one type of job contributes £120 in two scarce machine-hours, £60 per hour. Another contributes £150 but uses three, £50 per hour. When machine time is the constraint and demand exists for both, the first provides more contribution per scarce hour even though its contribution per job is lower.
Check quality, delivery commitments and future customer effects before changing the mix. This simplified ranking assumes other resources are available and costs behave as stated. A business with multiple bottlenecks needs a more detailed model.
Distinguish accounting costs from the owner's target
If a sole trader's desired drawings are not included in fixed operating costs, break-even does not fund those drawings. An illustrative £3,000 monthly owner-income target would require £9,000 contribution, or 75 jobs at £120. Capacity of 60 cannot meet that target unchanged. Drawings are not automatically an accounting expense; keep the target as a separate planning line.
The practical review is now specific: check actual job costs, pricing, rework, capacity and owner requirements. A queue proves that people want something. It does not prove that the current price and delivery method can support the business providing it.
