Finance Lab
Break-even and margin of safety
Work out the sales you must make before the business makes a cent, and how much cover you have above it.
Contribution margin = (price − variable cost) ÷ price. Break-even sales = fixed costs ÷ contribution margin. Margin of safety = (current sales − break-even sales) ÷ current sales.
Step 1 · Enter your figures
Every box starts with an example figure. Replace each one with your own — the result updates as you type. Nothing you type is sent anywhere or stored.
What a typical sale is worth, excluding GST.
Costs incurred only because that sale happened.
Costs you carry whether you sell anything or not — wages, rent, insurance.
Revenue you are actually making now.
Step 2 · Read the result
Contribution per sale
$200
- Contribution margin
- 40.0%The share of every sale left to cover fixed costs.
- Break-even sales
- $1,000,000
- Sales needed to break even
- 2,000Number of sales at your average value.
- Margin of safety
- 16.7%Sales could fall by this much before the business stops covering its costs.
- Operating result at current sales
- $80,000
- Contribution margin40.0%
- Break-even sales$1,000,000
- Sales needed to break even2,000
- Margin of safety16.7%
- Operating result at current sales$80,000
What this answer rests on (7)
- Average sale value$500
You entered this
What a typical sale is worth, excluding GST.
- Variable cost per sale$300
You entered this
Costs incurred only because that sale happened.
- Fixed costs each year$400,000
You entered this
Costs you carry whether you sell anything or not — wages, rent, insurance.
- Current annual sales$1,200,000
You entered this
Revenue you are actually making now.
- Costs split cleanly into fixed and variable, and both behave in a straight line across the range tested.
The calculator applied this
- Every sale carries the average value and average variable cost entered.
The calculator applied this
- Fixed costs stay fixed. In practice they step up as volume grows — retest at each step.
The calculator applied this
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Save to my workspaceWhat this means for you
The sales you must make before the business earns anything, and how far sales could fall before you are in trouble.
How to read it
- Contribution margin is the share of each sale left after the costs caused by that sale. Everything above break-even converts at that rate.
- Margin of safety is your cushion. A thin cushion means a small downturn becomes a loss.
- Raising price lifts contribution far faster than cutting variable cost — test both and compare.
Watch out for
- Calling a cost fixed when it is really variable, or the reverse. Wages of casual staff are usually variable.
- Assuming fixed costs stay flat as you grow. They step up — another vehicle, another shift, more space.
- Using an average sale value that mixes very different products together.
Assumptions behind this result
- Costs split cleanly into fixed and variable, and both behave in a straight line across the range tested.
- Every sale carries the average value and average variable cost entered.
- Fixed costs stay fixed. In practice they step up as volume grows — retest at each step.
General information only. This calculator does not take your circumstances into account and is not financial, tax, legal or investment advice. Confirm every rate, threshold and figure with your own adviser before acting.
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Take this further
Members run this calculator on their own recorded figures, save the workings to their workspace, export them to Word or Excel, and read the lessons that teach the thinking behind the result.