Break-even
The revenue at which the business stops losing money: fixed costs divided by contribution margin per sale.
Break-even is the point where money in equals money out. In units it is fixed costs divided by the contribution margin of one sale; in revenue it is fixed costs divided by contribution margin as a percentage.
Its real value is not as a milestone but as a target you can steer by. Most operators carry a vague sense that they need "more sales". Break-even converts that into a specific number of specific things, which is the difference between anxiety and a plan. It also makes the second lever visible: you reach it by selling more, and you reach it by needing less, and the second is usually faster because it does not depend on anyone else saying yes.
Watch for the version that quietly excludes your own salary. A business that breaks even only because the owner is unpaid has not broken even; it has moved the loss somewhere the accounts cannot see it.
Worked: fixed costs of $9,000 a month, an average engagement worth $2,500 with $1,000 of delivery cost — contribution is $1,500. Break-even is six engagements a month. Cancel $1,500 of unused overhead and it drops to five, which is one fewer sales conversation every month for as long as the business exists.
Also known as
- break-even point
- breakeven
Relevant for
- Founders
- Know the exact number of sales that makes the month safe — it turns a vague need for growth into a target you can actually aim at.
- Business owners
- Put your own market salary in fixed costs before you calculate it, or you will call a loss-making practice break-even for years.