Last updated 28 August 2026
Contribution is what does the work
Every unit you sell hands back the difference between its price and its variable cost. That difference is the contribution, and it is the only thing paying down your fixed costs. Divide the fixed costs by the contribution and you have the number of units that clears them — the break-even point. What this makes obvious is how powerfully price moves the answer: raising a price by a small amount raises contribution by the same amount, and because contribution is usually much smaller than price, the proportional effect on break-even is far larger than it feels. The margin of safety shown here is the gap between what you expect to sell and what you must sell, expressed as a percentage — the cushion you have before a bad month becomes a loss.
Common questions
What counts as a fixed cost?
Anything that stays the same whether you sell one unit or a thousand: rent, salaries, insurance, software subscriptions, loan payments. If a cost rises when you sell more, it belongs in variable costs instead.
What is contribution per unit?
Price minus variable cost. It is what each sale contributes towards covering your fixed costs, and once fixed costs are covered it becomes profit. A low contribution means you need a lot of volume before anything reaches the bottom line.
What does margin of safety tell me?
How far sales can fall before you start losing money, as a percentage of expected volume. A margin of safety of 10% means a modest bad month puts you underwater; 50% means you have real room to absorb a downturn.
Why does a small price rise change the answer so much?
Because it lands entirely on contribution, which is a fraction of the price. If a unit sells for 45 with 18 of variable cost, contribution is 27 — raising the price by 5 lifts contribution by 5, which is nearly a fifth more, and break-even falls accordingly.