Contribution pays for the fixed cost base.
Each sale contributes revenue less its variable cost towards fixed costs. Dividing fixed costs by that contribution margin gives the volume needed to cover the modeled cost base.
The result is a simplified operating break-even point. It assumes stable pricing and costs, and it does not automatically account for debt service, taxes, working capital or capital expenditure.
The formula, made clear.
- Contribution per unit
- Price less the variable cost associated with one sale.
- Required whole units
- The calculated volume rounded up to the next whole unit.
Put the numbers in context.
$50,000.00 fixed costs and a $160.00 contribution per unit require 312.5 units mathematically. At least 313 whole units produce $62,600.00 revenue and cover the cost base.
| Input | Example value |
|---|---|
| Monthly fixed costs | $50,000.00 |
| Revenue per unit | $200.00 |
| Variable cost per unit | $40.00 |
| Whole units to break even | 313 units |
What this calculation assumes
One product or a constant sales mix, fixed pricing and variable costs, with sufficient delivery capacity. Whole-unit rounding is applied.
What to consider next.
Compare this sales volume with demand and capacity. Use cash runway to account for the time needed to reach it.
How we approach financial models →