Finding Your Break Even Point
The Break Even Point of a business is the amount of products that you need to sell in order to cover your costs. Basically, how many cups of bubble tea you will need to sell every month to cover all of your monthly expenses. The first step to figuring out your Break Even Point is to know your price per cup of bubble tea. Once you know this then you can start adding in your other costs like rent, employee wages, bills, insurance, etc.
Knowing all of your numbers will give you more confidence when purusing your business plan and will also impress potential investors. It is also extremely useful in your planning stages because it will be able to tell you if you will be able to make your business profitable or not. For example, if you need to sell 1,000 cups of tea just to breakeven then you will need to adjust some things in your business. One common problem is paying too much for rent and not charging enough for your tea. If your rent is $6,000/month but you only charge $2.00/cup then you will need to sell 3,000 cups/month (100/day) just to cover your rent. Having a high monthly rent isn’t necessarily a problem, it just means that you will need to have more customers each day and sell your tea at a higher price.
Estimating Your Expenses
We recommend making a list of all the tea shops and coffee shops in your area and spending time at them to see what they charge for their drinks. If you have other bubble tea shops in your area, you can also see how many customers they get per hour so you can get an idea of how many customers your store will get.
You will also want to find out how much your rent is going to cost. To do this you can look online at a website like Zillow or by going to a few different shops that are for rent in your area. You can even ask some of the small businesses you go to and as long as you are friendly about it, most people will be glad to help and talk about their business.
Once you have your numbers it’s time to put them into your Break Even Analysis.
Break Even Analysis
Your Break Even Analysis will consist of two parts; your fixed costs and your variable costs.
Fixed Costs are costs that do not change each month. They are basically the same every month and include things like your monthly rent payment, insurance, bills and depreciation.
Variable Costs will change every month and will include things like employee costs and your monthly costs of goods sold.
Whether you are funding your business yourself or getting a loan from the bank, doing these calculations will help give you a better understanding of what you need to focus on when starting your bubble tea business. It will also help with your budget and is an important part in writing your business plan.