Break-Even Analysis

This finds the exact point where sales cover your costs — where you stop losing money and start making it.

Put plainly: how much do you need to sell before the business turns profitable? That's the question this answers. It matters most when you're launching a product, setting prices, or sizing up the risk in an idea before you commit to it.

What You'll Need — three inputs:

• Fixed Costs: the expenses that stay the same no matter how much you sell — rent, salaries, insurance.

• Price per Unit: what you charge for one unit of the product or service.

• Variable Cost per Unit: what each unit costs you to make and deliver — materials, packaging, the commission on the sale.

Your Results:

• Contribution Margin per Unit: price minus variable cost. What each sale contributes toward covering your fixed costs, and then toward profit.

• Break-Even Units: how many you have to sell before you've covered everything.

• Break-Even Revenue: the sales dollars at that same point.

Worth Knowing

• Fixed costs work in your favor past the line. Because fixed costs don't move with volume, every unit sold after break-even contributes far more to the bottom line.

• Margin beats price. A small cut in variable cost usually moves your break-even point more than a small price increase. Look at unit costs before you reach for the price tag.

• Revenue isn't profit. High revenue doesn't mean a healthy business. This shows the exact point where volume finally meets profitability, so you're not working harder to make less.