Minimum monthly profit is another term for a business’ break-even point. This number shows the minimum number, in dollars, that must be made to keep the business operating each month. Assuming a company sells one product, the steps involved in finding the minimum monthly profit are:
- Calculate the contribution margin, which is revenue per unit less variable expenses per unit, divided by revenue per unit.
- Divide total monthly expenses by the contribution margin to get break-even sales.
Assume a company generates $24 per unit of product sold and has variable expenses of $9 per unit. The contribution margin is:
($24 – $9) / $24 = 62.5%
Next, assume the company has $2,400 in fixed expenses per month and wants an MMP of $1,200. This totals $3,600. Thus, the break-even point in sales is:
$3,600 / 62.5% = $5,760 per month.