Get Your Break-even Clarity
Know exactly how many sales or clients it takes to cover costs and start profiting.
What this recipe is for
Removing guesswork on when growth becomes sustainable by quantifying the minimum volume needed to cover all fixed and variable costs.
What you’ll get
- Exact break-even threshold (units or clients)
- Visibility into how price, cost, and volume interact
- Quick scenarios to test “what if” changes (price increase, cost cut, volume shift)
- Confidence to set targets and avoid unprofitable scaling
Key inputs
- Fixed costs (rent, salaries, software, overhead)
- Variable cost per sale or client (COGS, delivery, transaction fees)
- Price or average revenue per sale/client
- Current volume (for context)
Core logic
Break-even = the point where revenue covers both fixed and variable costs.
Formula (simplified):
Break-even volume = Fixed Costs / (Price − Variable Cost per Unit)
You need that many sales or clients before you’re no longer running at a loss. Adjust price, reduce costs, or increase volume to shift the threshold.
Step-by-step actions
Step 1: Sum your fixed costs
List recurring costs that don’t move with volume (rent, base salaries, subscriptions).
Step 2: Calculate variable cost per unit/client
What it costs each time you deliver the product or service (materials, fulfillment, direct labor).
Step 3: Determine contribution margin
Contribution = Price − Variable Cost
This is what each sale contributes toward covering fixed costs.
Step 4: Compute break-even volume
Break-even = Fixed Costs / Contribution
This gives you the number of units or clients needed to cover all costs.
Step 5: Run scenarios
- What if price goes up 10%?
- What if variable cost drops via supplier renegotiation?
- What if volume increases by X%—does it cover fixed costs faster?
Step 6: Set targets and monitor
Use break-even as a baseline for marketing spend, growth pacing, and evaluating promotions.
Decision thresholds / guardrails
- Operating below break-even → Don’t scale customer acquisition aggressively; fix price/cost or increase volume first.
- Break-even point rising (due to cost creep or price pressure) → Revisit pricing, cut costs, or improve efficiency.
- Margin too thin to reach break-even quickly → Consider price adjustments or reducing variable cost before pursuing volume growth.
Examples
- Product business:
Fixed costs = $10,000/month.
Price = $100. Variable cost = $40.
Contribution = $60 → Break-even = $10,000 / $60 ≈ 167 units.
- Service business:
Fixed overhead = $8,000.
Average client revenue = $2,000. Variable cost per client (contractor time, delivery) = $500.
Contribution = $1,500 → Break-even = $8,000 / $1,500 ≈ 6 clients.
Thinking checks
- Do you know your current run rate vs. break-even threshold?
- What levers shift your break-even most efficiently (price, variable cost, volume)?
- Are you pacing growth to move past break-even without burning cash?
If the answer is no…
- You’re guessing on sustainability—calculate break-even now before investing more.
- Costs have drifted—update fixed and variable inputs.
- Price or margin is too low—test a small increase or cost reduction to lower the threshold.
What to track (minimum)
- Fixed vs. variable cost breakdown
- Contribution margin per unit/client
- Break-even volume over time
- Actual volume vs. break-even progress