Intermediate level · Module 4: Scenario Planning and Sensitivity · Lesson 2 of 3
Scenarios and Break-Even
Compare outcomes under different assumptions and find the level of sales needed to break even.
In this lesson you will
- Build pessimistic, base and optimistic scenarios
- Calculate break-even sales
Key concepts
scenariosbreak-evendownside riskdecision thresholds
The lesson
Scenarios show a range: pessimistic, base and optimistic, each with a consistent set of assumptions grounded in evidence.
Break-even sales = fixed costs ÷ gross margin percentage. With fixed costs of 180,000 SSP a month and a 30% margin, the branch needs 600,000 SSP of monthly sales.
Decisions often hinge on the downside: can the organisation survive the pessimistic case?
Step by step
- Define three scenarios with evidence.
- Calculate profit for each.
- Calculate break-even sales.
- Assess the downside.
Scenarios for opening a new branch
Monthly profit under pessimistic, base and optimistic sales, with the break-even point.
| Scenario | Sales (SSP) | Gross profit (SSP) | Profit (SSP) |
|---|---|---|---|
| Pessimistic | 800,000 | 240,000 | 60,000 |
| Base | 1,000,000 | 300,000 | 120,000 |
| Optimistic | 1,200,000 | 360,000 | 180,000 |
What the data shows
Break-even sales are 180,000 ÷ 30% = 600,000 SSP a month, so even the pessimistic case is 200,000 SSP above break-even.
Margin matters more than it looks: at 25% instead of 30%, base-case profit falls from 120,000 to 70,000 SSP.
Recommendation
Proceed if the evidence for the pessimistic sales level is solid, and track weekly sales and gross margin from the first month against these scenarios.
Practice activity
Add scenarios and break-even to the branch model.
Expected result: Three scenarios and a break-even point with a judgement on the downside.
Check your understanding
-
Give the break-even sales formula.
Show answer
Fixed costs ÷ gross margin percentage.
-
Why examine the pessimistic scenario closely?
Show answer
Decisions depend on whether the downside is survivable.
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