What is a break-even point?
The break-even point is the sales volume at which your total revenue equals your total costs, so you are neither making a profit nor a loss. Every unit sold above the break-even point contributes directly to profit. Knowing your break-even point is essential for pricing decisions, budgeting, and assessing business viability.
What is contribution margin?
Contribution margin is the selling price minus the variable cost per unit. It represents the amount each unit contributes toward covering fixed costs and generating profit. A higher contribution margin means you reach break-even faster and generate more profit per unit sold.
What is margin of safety?
Margin of safety is the difference between your current sales volume and the break-even point. It tells you how much your sales could fall before you start making a loss. A margin of safety of 30% means sales would need to fall by 30% before you reach break-even, making it a useful risk measure.