Break-Even Pricing Analysis
Determine exactly how many units you need to sell to cover your costs. Visualizing your break-even point is the first step to profitability.
Cost Structure
Unit Economics
The Profitability Threshold
The Green Line (Revenue) must cross the Red Line (Cost).
The Gap
The wider the angle between Revenue and Cost after the crossing point, the faster you generate profit.
Risk Level
A high break-even point is risky. It means you have to sell a lot just to survive. Low fixed costs reduce risk.
Contribution
If your price is lower than your variable cost, the lines will never cross. You lose money on every single sale.
Execution Steps
Enter your Total Monthly Fixed Costs (Rent, Salaries, Insurance).
Enter your Variable Cost Per Unit (Materials, Shipping, Packaging).
Enter your Selling Price.
The chart will show where Revenue (Green) crosses Total Costs (Red). This intersection is your Break-Even Point.
Pro Strategy
- To lower your break-even point, you can either: Raise Prices, Lower Variable Costs, or Lower Fixed Costs.
- Raising prices is usually the fastest way to lower the break-even threshold.
- If your break-even volume is higher than your total market size, the business model is invalid.
Core Concepts
Contribution Margin
Selling Price minus Variable Cost. This is the amount from each sale that 'contributes' to paying off your fixed costs.
Fixed Costs
Expenses that remain constant regardless of how many units you sell (e.g., Warehouse Rent).
Variable Costs
Expenses that scale directly with volume (e.g., Raw Materials, Payment Processing Fees).
What is Break-Even Pricing Analysis?
Break-Even Analysis (or Cost-Volume-Profit Analysis) calculates the sales volume at which total revenues equal total costs. It separates costs into Fixed and Variable components to show the scalability of the business model.
Best For
- • Validating a new business idea (is the required sales volume realistic?).
- • Deciding on a price increase (how much volume can we afford to lose?).
- • Analyzing the risk of adding new fixed costs (e.g., hiring a new employee).
Limitations
- • Assumes all costs can be neatly categorized as fixed or variable.
- • Assumes variable costs are constant per unit (no volume discounts).
- • Assumes everything produced is sold (no inventory waste).
Alternative Methods
Cash Flow Forecast
A more detailed timeline of when cash enters and leaves the bank.
Scenario Planning
Modeling 'Best Case', 'Worst Case', and 'Likely' outcomes.
Industry Applications
See how this methodology generates real revenue uplift in different sectors.
Coffee Shop Startup
High rent ($5k/mo) and labor ($10k/mo).
Calculated they needed to sell 300 cups a day to break even.
SaaS Company
High development costs (Fixed) but near-zero variable costs.
Focused purely on user acquisition.