Break-even

Break-even is fixed costs divided by contribution margin, expressed either as a dollar amount of sales or as a number of units, jobs, orders or seats. Below it the business loses money each month. Above it, each additional unit contributes its full margin to profit. It is the simplest and most useful planning number a company has.

For a BC owner the value is in knowing it precisely. If break-even is a hundred jobs a month and the schedule shows ninety, the month is a loss before it starts and the conversation about marketing, pricing or costs happens now rather than at month end. For a restaurant, a clinic, a school or a franchise location, break-even per week or per cohort decides whether a shift is staffed, a room is opened or a class runs.

In practice, we calculate break-even from a proper split of fixed and variable costs, which most charts of accounts do not provide, and we recalculate it whenever fixed costs step up, such as a new lease, a new hire or a new vehicle. Break-even is also the basis for the margin of safety, which is how far current sales sit above it, and for deciding how much fixed cost the business can take on before the next step in growth.