SKILL LABS

Break-even Point

SOLVENCY

Identify the exact volume required to cover all fixed costs. The zero-point of survival.

Fixed Costs ($)

Selling Price ($)

Unit Cost ($)

Break-even Units / Mo200

Break-even Revenue$30 000

Strategic Deep Theory

[-]

THE ZERO-POINT OF SURVIVAL

Your Break-even Point is the exact moment you stop bleeding and start building. It is the psychological and financial divide between 'Survival' and 'Strategy'.

Operating below this point is playing defense; operating above it is playing offense. If you don't know this number, you are flying a plane without an altimeter.

OPERATING LEVERAGE

A business with high fixed costs (rent, heavy payroll, expensive software) has high 'Operating Leverage'. This is dangerous in a recession because your break-even point is high and hard to reach.

However, once you pass that point, almost every additional dollar of revenue becomes pure profit. Lean businesses have low break-even points, making them resilient but harder to scale aggressively.

TACTICAL Q&A

Q: How can I lower my break-even point without firing people?

A: Audit your 'Fixed to Variable' ratio. Can you move some costs (like sales commissions or cloud hosting) to only occur when a sale happens? Every dollar moved from Fixed to Variable lowers your survival threshold.

Q: What if my break-even is higher than my maximum capacity?

A: You have a structural failure. You must either raise prices, significantly reduce unit costs, or find a way to increase capacity without adding fixed overhead. Scaling this model is mathematically impossible.

TERMS: CONTRIBUTION MARGIN VS GROSS PROFIT

→

CONTRIBUTION MARGIN: The revenue remaining after all VARIABLE costs are paid. This is what 'contributes' to paying your fixed costs.

→

MARGIN OF SAFETY: The distance between your actual sales and your break-even point. If your margin of safety is 10%, a bad week will kill your profitability. Aim for 30%+.

Contextual Glossary

KPI[+]

ROI[+]

Diagnostic Report

Interpretation

"Need 200 units to pay rent."

Identified Pattern

THE FRAGILE SCALE

CRITICAL RISK FACTOR

Fragile foundation.

SOLUTION MASTERY REQUIRED:

P&L Mastery