How much do you need to sell before you make a penny?
The revenue needed each month to cover every fixed cost. It turns a set of accounts into one practical target, and shows how much room the business has before a slow month becomes a loss.
Get a finance reviewBreak-even revenue = Fixed costs ÷ Contribution margin %. Margin of safety = (Actual revenue − Break-even revenue) ÷ Actual revenue × 100
A margin of safety of 20% or more gives reasonable resilience. Below 10% leaves little room for a lost client or a slow quarter.
The level of revenue at which contribution exactly covers fixed costs, so profit is zero. It is calculated from fixed costs and the contribution margin percentage. The gap between actual revenue and break-even is the margin of safety, and the rate at which profit changes as revenue moves above or below it is known as operating leverage.
Break-even gives owners a number they can hold in their heads. It shows how much a new hire, office move or software contract raises the bar, and how exposed the business is if revenue drops. Businesses with high fixed costs have strong operating leverage: profit rises quickly above break-even, and falls just as quickly below it. Knowing which kind of business you run changes how cautiously you should plan.
Use realistic fixed costs, including a market salary for the owner if they are not paid through payroll. Recalculate whenever fixed costs change, not just once a year. Express it monthly, as annual figures hide seasonality. Track the margin of safety alongside it: a business running only 5% above break-even is in a very different position from one running 30% above.
Most owner-managed businesses don't, or they work it out in a way that flatters the result. We'll calculate it from your own numbers and show you what it's telling you.
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