€60

contribution margin per unit in the example

50 units

break-even without own salary

92 units

break-even with a €2,500 salary

−14 %

volume needed after a 10 % price rise

The formula is short

The contribution margin per unit is the selling price minus the variable costs. Variable costs are the ones that arrive with each unit sold: materials, subcontracting, freight, the card fee. Fixed costs stay the same whether you sell a hundred units or none: rent, insurance, accounting, software, YEL.

The break-even point is the fixed costs divided by the contribution margin per unit. At a price of €100 and variable costs of €40 the margin is €60. With fixed costs of €3,000 a month, break-even is 3,000 divided by 60, or 50 units — €5,000 of revenue a month.

Your own salary is a fixed cost

An entrepreneur’s pay is a cost, not profit, and leaving it out gives break-even a false sense of safety. A company scraping along exactly at break-even pays its owner nothing. By every measure except the accounting profit statement, it is running at a loss.

The gap between the first and second rows is what startles most new entrepreneurs. Adding the salary raises the revenue needed not by €2,500 but by €4,200, because every euro of sales leaves only 60 cents of margin behind.

In a service business the unit is an hour

For a service business the arithmetic is identical, but the unit is a billable hour and the price is the hourly rate. Variable costs are often close to zero, so the whole rate becomes margin. That sounds excellent until you remember the other half: not all working time is billable.

At €60 an hour and a monthly need of €4,500 — €1,500 of fixed costs and €3,000 of salary — break-even is 75 billable hours a month. If 60 per cent of your time is billable, that means about 125 working hours, close to thirty hours a week. The other forty per cent goes to selling, quoting, bookkeeping and client email, none of which anyone pays for.

A price rise moves break-even more than extra volume

This is the most useful insight in the whole calculation. When the price rises from €100 to €110, variable costs stay at €40 and the margin climbs from €60 to €70. Break-even falls from 50 units to 43. A ten per cent price rise cut the volume needed by fourteen per cent.

The same money on the variable-cost side achieves less. If variable costs fall from €40 to €35, the margin rises to €65 and break-even is 47 units. The improvement is real but smaller — and room to negotiate with a supplier usually runs out sooner than a customer’s willingness to pay.

The last row deserves a second reading. A ten per cent discount raises the volume needed by twenty per cent. A discount campaign that fails to lift sales by a fifth leaves the business worse off than it was before the campaign started.

What break-even does not tell you

• ·It ignores VAT. The tax passes through the business and is neither income nor cost — always calculate break-even on VAT-exclusive figures.
• ·It ignores seasonality. A business that is profitable over the year can still fail in February if the cash will not stretch across a quiet month.
• ·It assumes the price holds at every volume. Large customers negotiate discounts, which pushes break-even up exactly when volume grows.
• ·It says nothing about payment terms. The margin can be fine and the bank account empty if customers pay in 60 days and the supplier waits 14.

It is still the number worth knowing by heart. It answers in one figure whether the month is heading into profit — and in a pricing conversation it is the only argument that is not an opinion.