Financial Intelligence
Before you know if a business is viable, you need to know what revenue covers all costs. Breakeven is the floor. Everything above it is profit.
Fixed costs
Costs that do not change with volume: rent, salaries, insurance, software
Variable costs
Costs that increase per unit sold: COGS, commissions, materials, fulfillment
Contribution margin
Price minus variable cost — what each unit contributes to covering fixed costs
Breakeven point
The exact revenue or unit volume where total revenue equals total costs
Margin of safety
Current revenue minus breakeven revenue — how far above breakeven you are operating
Contribution Margin = Price − Variable Cost per Unit
Example: $125 rate − $35 variable cost = $90 contribution margin
Breakeven Units = Fixed Costs ÷ Contribution Margin
Example: $15,000 fixed ÷ $90 = 167 hours/units
Breakeven Revenue = Fixed Costs ÷ Contribution Margin %
Example: $15,000 ÷ 72% = $20,833
Margin of Safety = (Current Revenue − Breakeven Revenue) ÷ Current Revenue
Example: ($28,000 − $20,833) ÷ $28,000 = 25.6% above breakeven
Service / Hourly
Variable cost = time-based costs (contractor pay, direct materials)
Fixed costs = overhead: office, software, insurance, owner salary
Breakeven = hours or engagements needed to cover fixed monthly overhead
Product / Unit
Variable cost = COGS, packaging, shipping per unit
Fixed costs = warehouse, salaries, ads (if not per-unit), software
Breakeven = units that must sell before any profit exists
Breakeven is survival, not a goal. Once you know the breakeven point, calculate what revenue is required at each profit target:
If your breakeven requires more revenue than you can realistically generate, you have three options — in order of effectiveness:
Raise price
Every dollar increase falls directly to contribution margin. Most operators under-price by 15–25%.
Cut variable costs
Negotiate COGS, reduce materials waste, optimize labor efficiency.
Cut fixed costs
Eliminate or defer fixed expenses. Last resort — fixed cuts often remove capacity.