Roisin Falvey opened a small cafe in Galway and spent her first six months confused about why some slow months felt financially survivable and others did not.
What is the difference between fixed and variable costs?
Fixed costs stay the same regardless of how many customers you serve. Roisin paid the same rent and the same loan repayment whether she sold 200 coffees or 800 that week. Variable costs, like milk, pastries, and disposable cups, rose and fell with sales volume.
Why does this distinction matter for a small business?
It changes how you interpret a bad month. When Roisin saw a loss in February, she initially blamed her pricing. After separating her costs properly, she realised her variable costs were actually well controlled. The problem was that her fixed costs represented too large a share of her break-even point for a business with seasonal demand.
How do I calculate my break-even point?
Divide your total monthly fixed costs by your average profit margin per sale. Roisin had fixed costs of around 3,200 euros per month and made roughly 1.80 euro net per transaction. That meant she needed at least 1,778 transactions monthly just to cover fixed costs before any profit.
Can variable costs become a problem too?
They can creep upward without obvious cause. Roisin noticed her ingredient costs rising gradually because she had not reviewed supplier pricing in eight months. A single renegotiation brought one supplier cost down by 11%.