Basic Break-Even Analysis

Overview

Understanding your break-even point is fundamental to exit planning. Buyers want to know how resilient your business is—how much cushion exists between your current sales volume and the point where you stop making money. A business operating at 2x break-even is far more attractive than one scraping by at 1.1x.

This tool calculates your break-even point in both units and revenue, shows your margin of safety as a percentage, and models how a 10% price swing in either direction would shift your break-even threshold. The visual chart makes it easy to see exactly where your revenue line crosses your cost line.

What’s Included

This workbook contains four sheets:

1. 01 - Instructions - Welcome and usage guide
2. 02 - Inputs - All your data entry happens here
3. 03 - Analysis - Break-even calculations and scenario modeling
4. 04 - Chart - Visual representation of break-even point

Input Section (02 - Inputs Sheet)

Fixed Costs (Monthly)

These are costs that don’t change with your sales volume:

• Rent/Lease - Monthly facility costs
• Salaries (Fixed Staff) - Employees paid regardless of production volume
• Insurance - Business insurance premiums
• Utilities - Electric, gas, water, internet
• Loan Payments - Monthly debt service
• Other Fixed Costs - Any other fixed monthly expenses
• TOTAL FIXED COSTS - Automatically summed

Variable Costs (Per Unit)

These costs scale directly with each unit you produce or sell:

• Materials/COGS per Unit - Raw materials, components, inventory cost
• Direct Labor per Unit - Production labor that varies with volume
• Shipping/Fulfillment per Unit - Packaging, freight, delivery costs
• Sales Commission per Unit - Per-sale commissions or transaction fees
• Other Variable per Unit - Any other per-unit costs
• TOTAL VARIABLE COST PER UNIT - Automatically summed

Pricing

• Selling Price per Unit - Your average selling price

Current Volume (Optional)

• Current Monthly Units Sold - Used to calculate your margin of safety

Analysis Section (03 - Analysis Sheet)

Key Metrics

• Contribution Margin per Unit - Price minus Variable Cost (what each sale contributes toward fixed costs)
• Contribution Margin Ratio - CM as a percentage of price (shows pricing efficiency)

Break-Even Results

• Break-Even Units (Monthly) - Fixed Costs ÷ Contribution Margin per Unit
• Break-Even Revenue (Monthly) - Break-Even Units × Selling Price

Scenario Analysis Table

See how pricing changes affect your break-even point:

Margin of Safety

If you entered your current volume, this section shows:

• Units Above Break-Even - How many units of cushion you have
• Margin of Safety % - Cushion as a percentage of current sales

The margin of safety cell turns green when positive (good) and red when negative (you’re below break-even).

Chart Section (04 - Chart Sheet)

A line chart showing:

• Blue Line - Total Revenue at various unit volumes
• Orange Line - Total Costs (Fixed + Variable) at various unit volumes
• Intersection Point - Your break-even point

The chart plots from 0% to 200% of your break-even volume, so you can see your current position relative to break-even.

How to Use

1. Open the 02 - Inputs tab and enter your monthly fixed costs in the yellow input cells
2. Enter your per-unit variable costs - be sure to include all costs that scale with volume
3. Enter your selling price - use your average if you have multiple price points
4. Optionally enter your current monthly volume - this enables the margin of safety calculation
5. Review the 03 - Analysis tab - your break-even point and scenarios are calculated automatically
6. Check the 04 - Chart tab - visualize where you stand relative to break-even

Color Coding Guide

• Yellow cells with navy border - Input cells (enter your data here)
• Mint/green cells - Calculated values (formulas - don’t edit)
• Orange cells with thick border - Key outputs (your answers)

Key Features

• Instant calculation - All break-even metrics update automatically as you enter data
• Scenario modeling - See how ±10% price changes affect your break-even threshold
• Margin of safety - Understand your cushion above break-even as both units and percentage
• Visual chart - Clear graphical representation of where costs and revenue intersect
• Professional formatting - Clean, presentation-ready layout

Understanding the Model

The Break-Even Formula

Break-Even Units = Fixed Costs ÷ Contribution Margin per Unit

Where Contribution Margin = Selling Price - Variable Cost per Unit

This tells you how many units you need to sell before you start making profit. Every unit sold beyond break-even contributes directly to profit.

Key Assumptions

• Single product/price point - This model assumes one average product and price. Multi-product businesses should use weighted averages or our advanced tools.
• Linear cost behavior - Variable costs are assumed perfectly linear (constant per unit). In reality, you may get volume discounts.
• Fixed costs are truly fixed - In practice, fixed costs may step up at higher volumes (e.g., need more warehouse space).
• No seasonality - This is a point-in-time snapshot, not a seasonal analysis.

Limitations of This Basic Model

• Does not handle multiple products with different margins
• Does not account for step-fixed costs at different volume levels
• No time-based projections (monthly/annual forecasting)
• No what-if modeling beyond the three price scenarios
• Assumes you can sell unlimited units at the stated price

For more sophisticated break-even analysis including multi-product modeling, seasonality, and integration with your full financial statements, see our premium tools or contact Exit Ready Advisors.

What This Tells a Buyer

During due diligence, buyers analyze your break-even point to understand:

1. Operational Risk - How close are you to losing money? A 40% margin of safety is much more attractive than 10%.

2. Pricing Power - If your break-even rises dramatically with a small price decrease, you may have thin margins and little room to compete on price.

3. Scalability - A low break-even point relative to current volume suggests strong unit economics and room for profitable growth.

4. Resilience - Can the business survive a demand shock? COVID taught buyers to value businesses with healthy cushions above break-even.

Why It’s Free

We believe every business owner should understand their break-even point before entering exit discussions. It’s one of the first questions a sophisticated buyer will ask, and you should know the answer. This tool gives you the framework to calculate it yourself.

Want More?

This tool covers single-product break-even basics. For more complex scenarios, Exit Ready Advisors can help with:

• Multi-product break-even analysis - When you sell multiple products at different margins
• Sensitivity modeling - Understanding which cost drivers have the biggest impact on your break-even point
• Contribution margin optimization - Finding the right mix of price, volume, and cost structure
• Integration with valuation - How break-even dynamics and margin of safety affect your business value
• Scenario planning - Modeling break-even under different market conditions

Check out our community for expert guidance and peer support from other business owners planning their exit.

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