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Operating model

Break-even without rounding away the decision

Find the theoretical volume and the first whole unit that covers fixed costs. A zero or negative contribution margin returns an undefined state.

Break-even modelOne operating period

First whole unit at break-even4,000 units
Theoretical units
4,000
Revenue
$320,000.00
Contribution margin
$30.00

Show the math

  1. Contribution margin = 80 - 50 = 30
  2. Break-even units = 120000 / 30 = 4000
  3. Break-even revenue = 4000 × 80 = 320000

Keep the period and unit consistent

Fixed costs, unit price and unit variable cost must refer to the same operating period and the same unit. If price is per subscription but variable cost is per user, the division looks correct while the model is wrong. The calculator returns a theoretical decimal result and a whole-unit planning result because a business cannot usually sell a fraction of one unit.

Worked example

At $120,000 of fixed costs, an $80 price and a $50 variable cost, each unit contributes $30. The theoretical break-even volume is 4,000 units and break-even revenue is $320,000. That does not include a target profit, capacity constraint, step cost, product mix or demand response.

Undefined is a useful result. If price is less than or equal to variable cost, selling more units cannot cover fixed costs under this model.