The unit volume that pays the rent.
Fixed costs, variable costs, selling price → units to break even, plus the safety margin against your forecast. Useful for pressure-testing a price change, a new product line or a planned hire.
Linear CVP model. Assumes one product line at a stable price and a constant variable cost per unit. Step costs (e.g. an extra warehouse at +500 units/month), product-mix shifts, volume discounts and price elasticity are not modelled. Useful for pressure-testing a pricing decision — not for committing to one.
Cost-volume-profit, in one screen.
The break-even point is the volume at which contribution (price − variable cost, summed across all units) exactly covers fixed costs. Above it, every additional unit is profit; below it, every shortfall comes off the bottom line.
- Contribution per unit. Selling price minus variable cost. The slice of every sale that's available to cover fixed costs and then profit.
- Break-even units. Monthly fixed costs ÷ contribution per unit.
- Break-even revenue. Break-even units × selling price.
- Safety margin. The gap between your forecast and the break-even point, as a percentage. A 25–30% safety margin gives reasonable room for forecast error; under 15% is uncomfortable.
What this model doesn't capture: product-mix shifts (the number assumes one product at a single price), step costs (e.g. another shift adds A$15K to fixed costs at 800 units/month), volume discounts on variable cost, or price elasticity (cutting price to lift volume usually doesn't move both linearly).
This information is general in nature and does not constitute personal financial or tax advice.
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