Calculate your exact break-even point in units and revenue, contribution margin, margin of safety, and how many months until your business turns profitable.
Break-Even Analysis Explained
Break-even is the sales volume at which total revenue equals total costs — zero profit, zero loss. Below this point, you're making a loss; above it, you're profitable.
Fixed costs don't change with sales volume: rent, salaries, EMIs, annual licenses, insurance. Variable costs change with every unit sold: raw materials, packaging, shipping, sales commission, payment gateway fees, GST collected (as a cost to unregistered sellers). Semi-variable costs like electricity have a fixed base plus a variable component — split them proportionally.
Three levers: (1) Increase selling price — even a 5–10% price increase can dramatically lower break-even if demand is inelastic. (2) Reduce variable costs — renegotiate supplier prices, cut packaging, optimize logistics. (3) Reduce fixed costs — renegotiate rent, move to shared spaces, defer non-essential salaries. Increasing contribution margin has the fastest impact on break-even.
A margin of safety above 25% means your actual sales are 25% above break-even — considered safe. Below 15% is risky; a modest revenue drop puts you in loss territory. New businesses should aim to reach a 20%+ margin of safety within 6–12 months of starting. Use the margin of safety to gauge how much revenue can fall before you hit losses.
