Find your break-even point in units and revenue. Analyse contribution margin, margin of safety, and profit at any sales volume. Essential for pricing and business planning.
Break-even units = Fixed Costs / (Selling Price - Variable Cost per unit). If fixed costs are Rs 1,00,000, price is Rs 500, and variable cost is Rs 300: break-even = 1,00,000 / 200 = 500 units.
Contribution margin = Selling Price - Variable Cost per unit. It represents how much each unit sold contributes to covering fixed costs. After fixed costs are covered, each unit generates this amount as profit.
Margin of safety = Actual Sales - Break-even Sales. It shows how much sales can drop before you start losing money. A margin of safety above 20% is generally considered healthy.
There is no universal standard — it depends on the business. What matters is whether your actual sales consistently exceed break-even. A lower break-even (achieved with lower fixed costs or higher margins) reduces business risk.
Raising price by 10% on a product with 40% contribution margin ratio reduces break-even units by approximately 20%. Price increases are the fastest way to improve profitability — even small increases have large impact.
Fixed costs do not change with production volume: rent, salaries, insurance, software subscriptions. Variable costs change with each unit: raw materials, packaging, shipping, commissions.
Lower fixed costs (renegotiate rent, go remote), increase selling price (better positioning, value communication), or reduce variable costs (better suppliers, process efficiency). Each approach reduces break-even units.