~2 min read
Break-even analysis tells you the minimum revenue your business needs to avoid a loss. It's one of the most important financial exercises for any founder or operator.
The break-even formula
Break-Even Revenue = Fixed Costs ÷ Contribution Margin %
At $25,000/month in fixed costs and 70% contribution margin: - Break-even = $25,000 ÷ 0.70 = $35,714/month
Every dollar above $35,714 generates $0.70 in operating profit.
What counts as fixed vs variable costs
| Fixed costs | Variable costs |
|---|---|
| Rent | Transaction fees |
| Full-time salaries | Contractor payments (per project) |
| Software subscriptions | Cost of goods sold |
| Insurance | Customer acquisition cost |
| Minimum AWS/GCP bills | Support tickets per new user |
Most SaaS businesses are 85–95% fixed costs. That's why the model scales — each additional dollar of revenue converts almost entirely to margin.
Contribution margin vs gross margin
For pure software businesses, contribution margin ≈ gross margin. Both exclude the variable cost per unit of revenue.
For businesses with meaningful variable costs (physical products, services billed hourly), contribution margin = (Price − Variable Cost per Unit) ÷ Price.
A $500 product with $150 in material cost has 70% contribution margin. If fixed costs are $50,000/month, break-even = $50,000 ÷ 0.70 = $71,429/month.
Margin of safety
Once you know break-even, margin of safety shows how much revenue you can lose before hitting a loss:
Margin of Safety = (Actual Revenue − Break-Even Revenue) ÷ Actual Revenue × 100
At $50,000 revenue against $35,714 break-even: - Safety margin = ($50,000 − $35,714) ÷ $50,000 = 28.6%
A margin of safety below 10% means a single bad month could push you into loss. Investors often look for >25% before calling a business resilient.
How to improve your break-even point
Three levers:
1. Reduce fixed costs — Renegotiate rent, automate headcount-heavy processes, cut unused subscriptions. Direct reduction in break-even.
2. Increase contribution margin — Raise prices, reduce COGS (supplier renegotiation, better hosting efficiency). The highest-leverage lever at scale.
3. Grow revenue faster than fixed costs — Classic operating leverage. If fixed costs stay flat while revenue grows, safety margin expands automatically.
Break-even analysis by business type
| Model | Typical contrib. margin | Break-even at $30k fixed costs |
|---|---|---|
| Pure SaaS | 75–90% | $33k–$40k MRR |
| SaaS with professional services | 55–70% | $43k–$55k/month |
| E-commerce (branded) | 30–50% | $60k–$100k/month |
| Agency / consulting | 40–60% | $50k–$75k/month |
| Physical product | 20–40% | $75k–$150k/month |
Frequently asked questions
What does this calculator do? Calculate the monthly revenue needed to cover your fixed costs given your contribution margin. Enter current revenue to see your safety margin.