Your Numbers
$
Rent, insurance, salaries, loan payments: costs that don't change with output
$
Average price per product or service unit sold
$
Materials, supplies, direct labor, commission per unit sold
$
Used to calculate your margin of safety
Results
Break-Even (Units)
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Break-Even (Revenue)
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Contribution Margin
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CM Ratio
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Margin of Safety
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Profit at Current Rev
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Revenue Breakdown at Break-Even
Enter your numbers above to see your break-even analysis.
Understanding Break-Even Analysis
The Break-Even Formula
Break-Even Point in Units:
Break-Even Units = Fixed Costs ÷ (Unit Price − Variable Cost per Unit)
Break-Even Point in Revenue:
Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio
Contribution Margin Ratio:
CM Ratio = (Unit Price − Variable Cost) ÷ Unit Price × 100
Margin of Safety:
Margin of Safety = Current Revenue − Break-Even Revenue
Revenue vs. Break-Even (Default Example)
Fixed Costs vs. Variable Costs
The foundation of break-even analysis is separating costs into two categories:
Fixed Costs
Costs that stay constant regardless of how many units you sell. They're owed whether you sell 0 or 10,000 units.
- Rent / mortgage
- Salaries and wages (fixed employees)
- Loan and lease payments
- Insurance premiums
- Subscriptions and software
- Utilities (base amount)
Variable Costs
Costs that change directly with production or sales volume. They're zero if you sell nothing; they increase as sales increase.
- Raw materials and supplies
- Direct production labor (hourly)
- Sales commissions
- Credit card processing fees
- Shipping and packaging
- Wholesale cost of inventory
What about "semi-variable" costs?
Some costs are partly fixed, partly variable, like utilities (base charge is fixed, usage charge is variable) or staffing (core team is fixed, overtime or temp labor is variable). For break-even analysis, split semi-variable costs: estimate the fixed portion and the variable cost per unit portion separately.
What is Contribution Margin?
Contribution margin is the amount each unit sold contributes toward covering fixed costs, after variable costs are paid. It's the revenue left over per unit to put toward profit.
If your unit price is $100 and variable cost per unit is $40, your contribution margin is $60. That means for every unit you sell, you put $60 toward fixed costs and (eventually) profit. Once fixed costs are fully covered, each unit sold generates $60 in pure profit.
How Contribution Margin Is Calculated (Default Example)
Contribution Margin Ratios by Industry
Understanding typical CM ratios in your industry helps you benchmark your own numbers.
Software / SaaS
70-90%
Typical CM Ratio
Consulting / Services
60-80%
Typical CM Ratio
Retail
40-60%
Typical CM Ratio
Restaurant
35-45%
Typical CM Ratio
Manufacturing
30-50%
Typical CM Ratio
Construction
20-40%
Typical CM Ratio
How Lenders Use Break-Even Analysis
When you apply for an SBA loan, conventional business loan, or in some cases even an MCA, lenders evaluate whether your current revenue is above your break-even point, and by how much. This is your margin of safety.
- Current revenue $75,000 / month and break-even at $45,000 = margin of safety of $30,000 (40%). Strong position.
- Current revenue $50,000 / month and break-even at $48,000 = margin of safety of $2,000 (4%). Fragile: any slowdown creates a loss.
Including a break-even analysis in your SBA loan application (in the financial projections section) demonstrates financial sophistication and gives lenders confidence that you understand your own economics.
Frequently Asked Questions
- What is a break-even point?
- The break-even point is the level of sales at which your total revenue exactly equals your total costs: no profit, no loss. Above the break-even point, the business is profitable. Below it, you're operating at a loss. Formula: Break-Even Units = Fixed Costs ÷ (Unit Price − Variable Cost per Unit).
- What is contribution margin?
- Contribution margin is the revenue remaining after variable costs are subtracted: the amount each unit sold "contributes" toward fixed costs and profit. Unit Contribution Margin = Selling Price − Variable Cost Per Unit. A contribution margin of $47 means each unit you sell puts $47 toward fixed costs and (once break-even is passed) profit.
- What is margin of safety?
- Margin of safety is the difference between your current revenue and your break-even revenue. It represents how much your revenue can drop before you start operating at a loss. A large margin of safety means your business is resilient to slow periods. Margin of Safety = Current Revenue − Break-Even Revenue. Margin of Safety % = (Current Revenue − Break-Even Revenue) ÷ Current Revenue × 100.
- How do I use break-even analysis for pricing decisions?
- Break-even analysis helps you understand the price floor: the minimum price at which a product or service is worth selling. If your variable cost per unit is $30 and fixed costs are $10,000/month, selling at $50/unit means you need to sell 500 units to break even. Selling at $60 means you only need 333 units to break even. Try adjusting price in the calculator above to see how pricing decisions affect your break-even point.
- How do I use break-even analysis for a business loan application?
- Lenders use break-even analysis to evaluate whether your business can service debt while remaining profitable. If your break-even point is $45,000/month and your current revenue is $60,000/month, you have a $15,000 margin of safety, comfortable for most lenders. Include your break-even analysis in your loan application package, especially for SBA 7(a) applications that require a business plan.