Calculate the break-even point — how many units you need to sell to cover all your costs.
| Step | Formula |
|---|---|
| Margin / unit | price − variable cost |
| Break-even (units) | fixed costs ÷ margin/unit |
| Break-even revenue | break-even units × price |
| Margin of safety | planned sales − break-even units |
The margin of safety shows how much your sales forecast can be off before you incur a loss. A negative margin of safety means the planned sales don't cover fixed costs.
Fixed costs do not depend on sales volume (rent, salaries, insurance). Variable costs grow proportionally with sales (materials, components, packaging).
By raising the price, lowering the variable cost per unit, or lowering fixed costs — any of these actions reduces the sales volume required for profitability.
The simple model works for a single product/service. For multiple products, use a weighted average margin or calculate separately for each product.
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