Break‑even
Point where total revenue equals total costs.
Overview
Break‑even marks the point where contribution margin covers fixed costs. Beyond this point, incremental units contribute to profit.
Break‑even is the point where contribution margin covers fixed costs; profit begins beyond this point.
Definition
Focus on contribution margin for recurring models. Track blended margins over time so the break‑even calculation reflects current economics.
Break‑even is the point where contribution margin fully covers fixed costs. Beyond break‑even, each incremental unit contributes to profit. For recurring revenue businesses, focus on contribution margin and retention to reach break‑even sustainably.
Formula
Use contribution margin.
Divide fixed costs by contribution margin per unit to estimate break‑even units.
Break‑even units = Fixed costs / (Price − variable cost)
Example
$50k fixed, $20 margin → 2,500 units.
Provide a fixed cost and margin example to show how many units are needed to break even.
Common pitfalls
Using gross revenue instead of contribution, ignoring variable cost shifts, or mixing cash and accrual accounting skews results.
- Using gross revenue instead of contribution
- Ignoring variable cost changes
- Mixing cash and accrual accounting
Benchmarks
Context‑dependent; many SaaS aim to reach break‑even by Series A/B stage.
Context‑dependent. Emphasize reaching sustainable operations before scaling spend.
Notes
In SaaS, prioritize contribution margin and retention to reach break‑even sustainably.
- Focus on contribution margin in SaaS
- Account for blended gross margin shifts over time
Related terms
Break‑even connects to gross margin and net margin and guides scale decisions.
FAQs
FAQs ask about revenue break‑even and converting units to revenue.
Revenue break‑even?
Multiply units by price.