Breakdown
How it works
Each unit sold contributes (price − variable cost) toward fixed costs. Break-even is where total contribution equals fixed costs. Margin of safety shows how far sales can fall before you lose money; a thin margin of safety means a fragile business.
Formula
Worked example
Fixed 12,000 a month, price 50, variable 30: contribution 20 → 600 units (30,000 revenue). At 800 units: margin of safety 25%, profit 4,000.
Frequently asked questions
What counts as a fixed cost?
Costs that do not change with volume in the short run: rent, salaries, insurance, software, loan payments. Variable costs scale per unit: materials, packaging, payment fees, commission, delivery.
How do I break even faster?
Raise price (most powerful), cut variable cost, or cut fixed cost. A 10% price rise on a 40% contribution margin raises contribution by 25%.
Break-even for a service business?
Use billable hours as units: price = hourly rate, variable cost = direct cost per hour (often near zero), so break-even hours = fixed costs ÷ rate.