A new THB 120,000 project arrives in a month when the team has some spare time. If accepting it adds THB 70,000 in expenses, should we say yes immediately because THB 50,000 remains?
That depends on whether the THB 70,000 includes everything the project changes, and whether the spare capacity is in the skills and steps it actually needs. This episode puts the costs from the previous article beside revenue, profit, and cash before using the figures to decide on one additional job.
Total and marginal revenue answer different questions
Total revenue is the sales value of all units in the quantity considered. For one product sold at one price, it is price per unit times the number of units. Average revenue is total revenue divided by units sold. Marginal revenue is the change in total revenue from selling another unit.
If a price cut is needed to sell more, ask whether the lower price applies only to new units or also to earlier ones. Revenue from an extra sale is not always the new unit's sticker price.
One software project may take two days and another several months. Dividing revenue by the number of projects yields an average, but it does not make the projects directly comparable units. I would use “revenue added by this choice,” with its scope and period, rather than force one price-per-project measure onto every job.
To decide whether an added job is worthwhile, compare the revenue it changes with the costs it changes and the best alternative forgone. Added sales are not added profit, and added profit is not cash ready to spend.
An integration project with genuinely spare capacity
Suppose a software contractor considers an integration project priced at THB 120,000. Developer, design-review, and testing time is available for the agreed scope. The project does not delay existing work or displace a better alternative. All amounts exclude tax, and we set aside the time value of money for now.
Scroll the table left and right to read every column.
| Item | Amount | Assumption to confirm |
|---|---|---|
| Revenue from new project | THB 120,000 | Scope and acceptance terms are clear; full payment is collected |
| Subcontractors | THB 40,000 | Includes work that needs outside specialists |
| Test systems and external services | THB 10,000 | Added to the company's existing base cost |
| Overtime and added acceptance review | THB 20,000 | Actual work and testing scope have been checked |
| Added revenue less listed added expenses | THB 50,000 | Not net profit or immediately available cash |
Added expenses total THB 40,000 + THB 10,000 + THB 20,000 = THB 70,000. That leaves THB 120,000 - THB 70,000 = THB 50,000 before existing expenses. If other costs do not change and there is no additional opportunity cost, this figure helps show what the new job adds under the assumptions.
But suppose the job needs the same design reviewer as another feasible job that would yield THB 60,000 net of relevant costs, and only one can be done. The new job's THB 50,000 is THB 10,000 worse. Confirm that the other job's THB 60,000 is already net of its relevant costs; do not compare against its full sales figure.
Risks not yet valued, such as fixes after delivery, missing customer data, or extra support obligations, need their own scenarios. Do not hide them behind “profit is certain.” The most attractive figure is not a guaranteed result.
A worthwhile job can run short of cash before payment arrives
Continue the same example. Suppose the customer pays the full amount 60 days after acceptance, with no deposit, while the company must pay the THB 70,000 in added expenses first. Even if THB 50,000 is expected to remain, the company needs THB 70,000 during the wait, plus its separate existing obligations.
A 30% deposit brings in THB 36,000 first and leaves THB 34,000 of the listed added expenses to fund, assuming the deposit arrives before all those payments. Actual cash needs still depend on each payment date, acceptance terms, and contractual refunds. A deposit is not all profit available to spend.
Make a cash plan by the actual day or week of each payment. Test late customer payment, work taking longer, and added service purchases. If borrowing is needed, include the financing cost that changes with the choice.
A special manufacturing order needs a batch-level view
Suppose a factory has time for a special order of 200 units at THB 160 each. Materials and other variable costs are THB 90 per good unit, with THB 4,000 for an extra setup and THB 2,000 for added delivery. All units meet the standard, the THB 90 rate includes scrap, and no other costs are added in this example.
Batch revenue is THB 32,000. Costs that change are THB 18,000 + THB 4,000 + THB 2,000 = THB 24,000, leaving THB 8,000 before existing costs. Looking only at THB 160 - THB 90 = THB 70 per unit misses another THB 6,000 at the batch level.
If the special batch displaces existing work that would yield THB 10,000 net in the same period, the special option is THB 2,000 worse under that comparison. If a shift change would allow both, recalculate shift costs, quality, safety, and actual obligations. Do not automatically keep using the old opportunity cost.
The special price may also affect what existing customers will pay or take sales away from them. Include those effects when relevant. Assuming a one-batch price has no effect elsewhere is useful for learning the calculation, but it should not be assumed in every real order.
Break-even works when the unit and cost range are clear
Selling price per unit less variable cost per unit is the contribution margin, the amount available to cover fixed costs and then profit. For one product with a stable price and variable cost per unit within the range considered, break-even units equal fixed costs divided by contribution margin per unit. The margin must be positive.
Suppose a standard product sells for THB 200 per unit, has THB 120 variable cost per unit, and THB 80,000 fixed cost per month. Break-even is THB 80,000 / (THB 200 - THB 120) = 1,000 units per month. This is a new example separate from the special batch above; do not mix their costs.
Those 1,000 units must actually sell, not merely be produced and left in stock. The example assumes capacity can support them without another increase in fixed cost. For several products, define the sales mix or use a model that accounts for the differences. Dividing fixed costs by the number of projects with different scopes can mislead.
Separate accounting and economic profit before reading the result
Accounting profit considers revenue less expenses under the accounting framework. Economic profit also includes opportunity costs not already in those expenses. Compare them over the same period and scope. Do not call the THB 50,000 from one added job the company's entire accounting profit.
For a new job, write two answers: what it adds under current capacity, and how much cash is needed before collection. Those answers may lead to different decisions.
When capacity is limited, add a third line for the work given up and why. A job priced below full cost may help cover existing costs for a while. If that price continues without covering the resources the business needs to maintain, the company may not be sustainable over the long run.
Episode 5 moves from accepting more work with current capacity to expanding teams and machines. When several inputs can change together, business scale has to be read differently from short-run marginal returns.
Common questions
Should we take every job with a positive contribution?
Check batch- or project-level costs, opportunity cost, quality, risk, and working capital first. If the job displaces a better one or breaks an existing contract, a positive figure before those effects is not the final answer.
Does reaching break-even mean there is enough cash to pay the bills?
Not necessarily. Break-even here uses revenue and cost under stated assumptions; it says nothing about payment dates. Customers may still owe money while materials, salaries, or investments come due. Make a separate cash plan.
Sources used to check the concepts
This episode uses revenue, relevant cost, profit, and break-even to compare choices while separating cash timing from returns. OpenStax 7.1 and 7.3 below offer more on cost and profit. The software, SI, Odoo Partner, and manufacturing orders are hypothetical cases I created, not real company margins or prices.
Read OpenStax 7.1 on accounting and economic profit and OpenStax 7.3 on cost behavior
