Break-even and margin of safety

ClearCFO learning guide · Updated 27 September 2026 · Educational information

Use contribution

Break-even units equal fixed costs divided by contribution per unit. Break-even revenue equals fixed costs divided by the contribution-margin ratio. If contribution is zero or negative, there is no finite break-even volume under those assumptions.

Match the period and capacity

Monthly fixed costs must be compared with monthly sales. Identify capacity constraints and step costs: another shift, warehouse or manager may be needed as volume grows.

Treat mix as an assumption

For several products, a weighted contribution ratio depends on sales mix. Selling more of a lower-contribution product can increase revenue without delivering the expected profit.

Use a sensitivity table

Test price, variable cost and volume together. Break-even is a planning simplification, not a cash forecast; collection timing, investment, taxes and financing can still create a cash gap.