Example
Input: $10k Fixed, $10 Margin
Result: 1,000 Units
Step-by-Step Guide
- Sum Fixed – Rent, Salaries, Insurance.
- Unit Economics – Price - Variable Cost.
- Threshold – Fixed / Contribution.
What is Break-Even Analysis?
The point where Total Revenue equals Total Expenses (Fixed + Variable).
How it Works
1. Quantify 'Fixed Costs'.
2. Determine 'Contribution Margin' per unit.
3. Divide Fixed Costs by Margin.
FAQ
Timeframe?
Calculate monthly or annually.
Lowering BEP?
Raise prices or cut fixed costs.
Variable costs?
Materials, shipping, commissions.
Safety margin?
Aim for sales 20% above BEP.
Is BEP profit?
No, BEP is $0 profit.
Conclusion
Profitability begins only after the break-even unit is sold. Startups should obsess over lowering this threshold.