Question 1

How do I calculate my break-even point?

Accepted Answer

Divide monthly fixed costs by your contribution margin. In units: fixed costs divided by (price minus variable cost per unit). In revenue: fixed costs divided by contribution margin ratio. A business with $20,000 fixed costs and a 40 percent contribution margin breaks even at $50,000 of monthly revenue.

Question 2

What counts as a fixed cost versus a variable cost?

Accepted Answer

Fixed costs stay the same whether you sell one unit or a thousand: rent, salaried payroll, insurance, software, loan payments. Variable costs scale with each sale: materials, direct labor, card processing, packaging, shipping, commissions. Mixed costs like utilities should be split by their behavior.

Question 3

What is a good margin of safety?

Accepted Answer

Margin of safety is how far sales can fall before you hit break-even. Above 25 percent is generally healthy; under 10 percent means a slow month puts you in the red. Seasonal businesses should judge it against their weakest quarter, not their average month.

Question 4

Does lowering prices ever lower my break-even point?

Accepted Answer

No. A lower price shrinks contribution margin, which always raises the units required to break even. Price cuts only work when volume rises more than enough to offset the thinner margin, which is rarer than most operators assume.

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