Contribution Margin = Selling Price − Variable Cost per Unit
Break-Even Units = Fixed Costs ÷ Contribution Margin
Break-Even Revenue = Break-Even Units × Selling Price
Once you exceed the break-even point, every additional unit sold generates pure profit equal to the contribution margin.
What are fixed costs?
Costs that stay the same regardless of how many units you sell — rent, salaries, insurance, software subscriptions. They don't change with output.
What are variable costs?
Costs that change with each unit produced or sold — materials, packaging, payment processing fees, direct labour per unit.
What is the contribution margin?
The amount each unit contributes to covering fixed costs after its own variable cost. Once fixed costs are covered, the contribution margin becomes profit.