Fixed costs, utilisation, break-even and operating leverage

Logs are a variable cost; much else is not. A mill pays for the sawline, kilns, yard, staff and capital whether it runs at 60% or 90% of capacity. This lesson shows how to turn that into break-even and utilisation KPIs.

Break-even logic

break-even volume = fixed cost per period / contribution per m³

Contribution is revenue per m³ (sawn plus residue credit) minus variable cost per m³. Dividing break-even volume by capacity gives break-even utilisation. Fixed and variable are not clean categories (labour is semi-fixed, maintenance partly variable), and log cost per m³ sawn depends on recovery, so recovery is itself a cost driver.

Illustrative mill continued (illustrative numbers, not market data)

Same invented mill as lesson 3: 100,000 m³ of logs a year, recovery 50% so 50,000 m³ sawn, installed capacity 125,000 m³ of logs, equal to 62,500 m³ sawn, utilisation 80%. Contribution 55 euro/m³ sawn.

Result before tax: 55 - 53 = 2 euro/m³, so 100,000 euro on revenue of 50,000 × 284 = 14.2 million euro, a margin of about 0.7%.

Break-even. Fixed cost per year 53 × 50,000 = 2.65 million euro. Break-even volume 2,650,000 / 55 = 48,182 m³ sawn. That is 96% of planned output, and 48,182 / 62,500 = 77% of capacity. The margin of safety is under 4% of volume.

After a log price rise of 5 euro (contribution 45): break-even 2,650,000 / 45 = 58,889 m³, which is about 94% of capacity. The mill now has almost no room to operate.

Operating leverage

At high utilisation each extra cubic metre carries a large contribution; when utilisation falls, fixed cost per m³ climbs. With fixed cost at 53 euro/m³ at 50,000 m³, a 10% volume increase gives 53 / 1.1 = 48.2, a fall of about 4.8 euro per m³ or 9%. That is why mills keep running through weak markets while contribution is positive, and cut shifts when it is not.

Three KPIs to keep apart

• Capacity utilisation: actual output or log input divided by installed capacity. Define capacity (nameplate or practical under the actual shift pattern); a one-shift mill can look underused yet be fully used within its labour model.
• Throughput: logs or sawn volume per hour through the true bottleneck (primary breakdown, sorting or kilns). A faster saw is useless if the sorter or kiln limits output.
• Uptime (availability): share of scheduled time the line runs. Split lost time into planned stops, breakdowns, micro-stops and waiting for logs.

Overall equipment effectiveness (OEE) is the usual composite: availability × performance × quality. For illustration (illustrative numbers, not market data), 90% availability, 90% performance and 95% quality give 0.90 × 0.90 × 0.95 = 0.77, or 77%.

Reference points, with caveats

Two utilisation figures were verified: 64.7% for the US sawmill and wood preservation sector in the fourth quarter of 2024 (four-quarter moving average, National Association of Home Builders), and below 50% of capacity for small and medium mills in the Zambian Copperbelt (2021). Industry structures and definitions differ, so neither is a benchmark for a European mill. No open, current European utilisation or uptime benchmark was verified, so none is quoted here.

Checklist: break-even review

• List fixed costs for the period; mark semi-fixed items explicitly.
• Compute contribution per m³ with current log price and current recovery.
• Compute break-even volume and break-even utilisation.
• Re-run with log price +5%, sawn price -5% and utilisation -10%.
• Decide in advance what you will do if contribution turns negative.

Key points

• break-even volume = fixed cost / contribution per m³; divide by capacity for break-even utilisation.
• In the illustrative mill break-even is 48,182 m³ (77% of capacity), but a 5 euro log rise lifts it to 58,889 m³.
• Operating leverage: +10% volume cut fixed cost per m³ from 53 to about 48.2.
• Keep utilisation, throughput (at the bottleneck) and uptime separate; OEE is availability × performance × quality.
• No verified European utilisation benchmark exists in the portal's sources; do not borrow US or Zambian numbers.