Margin of safety
In one sentenceThe difference between actual or expected sales and break-even sales; it shows how far sales can fall before losses begin.
Simply put
If your sales are far from the break-even point, you have room for safety: a weak month won't push you into a loss. If they are close to it, any slight drop turns profit into loss.
It is shown in riyals, in units or as a percentage of sales.
Worked example
A restaurant has monthly sales of 200,000 SAR and break-even sales of 160,000 SAR.
Margin of safety = 200,000 − 160,00040,000 SAR
As a percentage = 40,000 ÷ 200,00020%
Sales can fall before a loss by20%
Formula: (Actual sales − Break-even sales) ÷ Actual sales
Don't confuse it with
Safety stockSafety stock is a reserve quantity of goods and has nothing to do with the break-even point.