The most important number in my business is the Break-even Point; that is fixed expenses divided by my profit margin = sales. By fixed expenses, I mean expenses that can't be trimmed any further, such as rent, electric, basic phone, insurance, etc. and nowadays I must add, computer services. I also include my own wages -- at least, the minimal amount I need to survive.

Profit margin is sales, minus Cost of Goods. So if my lowest possible costs are 5000.00, and my best possible profit margin is 50%, I need to gross 10,000.00 not to lose money. If my lowest possible costs are 6000.00 and my best possible profit margin is 40%, I need to gross 15,000.00 not to lose money. These numbers always seem to end up with me being close to the edge. For instance, to grow to 20,000.00 in sales, I might need to cut my margin to 30% for awhile, (given 6000.00 in expenses.)

That is, my actual profit at 20k can be exactly the same profit as sales at half that number, depending on overhead and margins.

These are also the numbers I try to use in trying to gauge whether other stores around me could possibly be breaking even. I'm guessing at overhead and guessing at margins and guessing at sales -- but I bet I come pretty close on overhead, within shouting distance of margins. Sales are more problematic, but then....if I never see any customers in a location, that can't be good.

I've been close to the 'break-even point' many times over the years; certainly when I started, and then, as bubble fads burst, at the nadir of those markets. Those are always the scariest times for me, because it means that any single major shock could've knocked me out. So I prefer to give up profit margins to drive sales upward to give myself a cushion, while trying to keep my overhead from drifting much higher.

I can handle a 20% drop without any real effects. Indeed, I'd already factored in a 10% drop simply because I have quit ordering 'extra.' Another 10% drop simply requires matching orders with sales. If I drop 30%, it would mean tougher choices on what to replace; say, reordering stuff that sells twice a year, instead of the stuff that sells once a year. A 40% drop would require some hard choices; cutting overhead, and only reordering the best-sellers. And so on.

One of the reasons I think the "Best Time to Buy in 20 Years" gimmick and other ostrich in the sand promotions are so crazy is that it will come back and bite the promoters. You can't deal with a problem until you acknowledge it. If I was them, I'd be saying something like, "Houses are getting cheaper, you have lots of choice, look for a good deal." None of that is misleading, and it wouldn't be my job to tell the customer to wait. But pretending that Bend isn't going to feel the full brunt of the housing crash is hypocritical and foolish.

Currently, I'm grossing about twice as much as I need, if my overhead was cut to my lowest possible level, and my margin was pushed to it's highest possible level. I could even go a bit further, if I had too. I've gone five years or more living off inventory plus a 55% margin, and cutting my overhead to bare minimum -- cutting basic cable service at home, or combining garbage from home and work, working every single day, etc. Not much fun, but I can and have done it. One of the reasons I now have a manager who's getting a relatively good wage and works full time is because, after 28 years, I know I can't go on working every day. Those hard times of living off inventory are also why I've spent the past five years boosting my inventory as much as possible. But in the back of my mind, there is always the possibility that I'll be living and working at base levels.

It certainly doesn't grow sales, but you do what you have to do. (The fact that everyone else is in the same boat protects you from crazy competition, and makes people a little less demanding.) When things get that bad, you are just in a holding pattern. I suspect most normal people would have said, screw this I'm getting a job. Certainly, anyone with any other options will take them.

So, I guess that's why this recession doesn't scare me. I'm way above the levels I need, and I can constantly adjust. I saw it coming, and it's nothing compared to having sport cards sales or comic sales drop in half, or pogs and beanie babies drop to zero, overnight.

I've given myself a bit of rest over the last few years, to boost my inventory to the highest levels the store can absorb, diversify and mainstream my selection. Ive been able to do other things once in a while, even managed to get my credit cards and savings in order. So, we'll see what happens...