Betsy Ross didn't sew the first flag without knowing exactly what it would take. Before you launch, hire, or price — know the exact number where your business stops bleeding and starts building.
= Fixed Costs ÷ Contribution Margin per Unit
The contribution margin — selling price minus variable cost — is what each unit contributes toward covering fixed costs. Once enough units cover all fixed costs, every additional unit is pure profit.
Fixed costs stay constant regardless of volume: rent, salaries, software. Variable costs scale with each unit: materials, packaging, transaction fees, commissions. Keep them separate for an accurate break-even.
A small price increase dramatically lowers your break-even point. If your contribution margin is thin — say 20% — raising price by 10% can reduce break-even volume by 30–40%. Model the price increase before cutting costs.
Break-even analysis is essential for evaluating new hires, new products, price changes, and marketing spend. The question is always the same: does this decision lower my break-even point, or raise it?
George Washington in StellaPop CommandHub helps founders think through strategic decisions, business models, and growth planning.