What is a break-even point?
The break-even point is the sales volume at which total revenue equals total costs — you're neither profitable nor losing money. Every unit sold beyond break-even contributes directly to profit.
What is contribution margin?
Contribution margin is the selling price minus variable costs per unit. It represents how much each sale contributes toward covering fixed costs and generating profit. A higher contribution margin means you break even sooner.
How do I lower my break-even point?
You can lower break-even by: (1) reducing fixed costs (smaller space, renegotiating contracts), (2) reducing variable costs per unit (supplier negotiation, process efficiency), or (3) increasing your selling price. Even small improvements compound significantly.
Is break-even analysis useful for service businesses?
Yes. For services, use billable hours or client engagements as your 'unit.' Variable costs include contractor pay or direct service delivery costs. Break-even analysis is just as powerful for law firms, consultants, and agencies as for product businesses.