How it works
- Contribution margin
- Contribution margin is what each sale leaves over after its own variable costs, available to pay fixed costs and then profit.
- Contribution per sale = price − variable cost
- Contribution margin % = contribution ÷ price
- Break-even sales = fixed costs ÷ contribution per sale
- Break-even revenue = fixed costs ÷ contribution margin %
- Sales for a target = (fixed costs + target) ÷ contribution per sale
What owners usually learn
Small price changes move break-even more than most cost cuts, because they flow straight into contribution. Test it: raise the price by 5% and watch the break-even number fall.
The hard part is the inputs. Splitting costs into fixed and variable, and knowing your real cost per job, needs clean books and job costing. That is where bookkeeping done properly earns its keep.
Questions
What counts as a fixed cost?
Costs that stay roughly the same whatever your sales volume in the month: rent, salaried staff, insurance, software subscriptions, loan interest. Costs that rise with each sale, such as materials or commissions, are variable.
Can I use this for a service business?
Yes. Treat a typical job, client or billable hour as the unit. Variable cost is the direct labour and materials that go into it.
Why is my break-even impossible?
If variable cost per sale is equal to or higher than the price, each sale loses money before fixed costs, so no volume breaks even. That is a pricing or costing problem worth looking at first.
General information, not advice for your situation. Results are only as good as the numbers you enter.