Why does a small price cut need such a large volume increase?

Because the cut comes entirely out of the contribution margin. If the margin is forty percent of the price, a ten percent price cut removes a quarter of the margin, and the volume has to rise by a third just to stand still.

What is a healthy margin of safety?

It depends on how volatile the sales are. A business with steady demand can run close to break-even; one with seasonal or lumpy revenue needs far more room, because the margin of safety is what absorbs a bad month.

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Break-Even Point Calculator

The volume at which revenue covers cost, with the margin of safety against your current sales and a price change you can test. A ten percent price cut usually needs a far larger volume increase than people expect, and this page shows how much larger.

Also called: break even point calculator, breakeven analysis.

Break-even volume

800

800 units a month covers 4,00,000 of fixed cost at a contribution margin of ₹500 a unit. At 900 units you are 100 above break-even, a margin of safety of 11.1%, and the month makes 50000. Each unit contributes 500, which is 41.7% of the price. Use the price change field to see how hard a discount hits: the cut comes entirely out of that contribution.

Break-even revenue

₹9,60,000

Contribution a unit

₹500

Contribution margin ratio

41.67%

Units for the profit target

800

Profit at your current volume

₹50,000

Margin of safety

11.11%

Break-even after the price change

800

Where you stand

At 900 units you are 100 above break-even, a margin of safety of 11.1%, and the month makes 50000.

On the margin

Each unit contributes 500, which is 41.7% of the price. Use the price change field to see how hard a discount hits: the cut comes entirely out of that contribution.

How this is calculated

Profit by volume

Hover or drag for values

Profit

Volume against profit

Units	Revenue	Contribution	Profit
0	₹0	₹0	-₹4,00,000
200	₹2,40,000	₹1,00,000	-₹3,00,000
400	₹4,80,000	₹2,00,000	-₹2,00,000
600	₹7,20,000	₹3,00,000	-₹1,00,000
800	₹9,60,000	₹4,00,000	₹0

Method and background

How this is calculated

Only the contribution margin, price less variable cost, pays down fixed costs, so the break-even is the fixed cost divided by that margin. The leverage in the denominator is the whole story: at a five hundred rupee margin on a twelve hundred rupee price, cutting the price by ten percent removes a hundred and twenty from a margin of five hundred, so nearly a quarter of the contribution goes and the break-even rises by almost a third. The margin of safety, how far current sales sit above break-even, is the figure that says how much room a business has before a bad month becomes a loss.

fixed costs divided by what each unit contributes after its own variable cost, which is why a price cut moves the break-even far more than a cost cut of the same size

F: Fixed costs
p: Price a unit
v: Variable cost a unit

Worked examples

Each of these is asserted on every build. If a change to the engine ever moved one of these answers, the build would fail before the page could print it.

a 500 contribution against 400,000 of fixed cost

Fixed costs a month: ₹4,00,000
Price a unit: ₹1,200
Variable cost a unit: ₹700
Units you sell now: 900
Profit you want: ₹0
Price change to test: 0%

Break-even volume800

400000 / 500

Open this example

a 10 percent price cut

Fixed costs a month: ₹4,00,000
Price a unit: ₹1,200
Variable cost a unit: ₹700
Units you sell now: 900
Profit you want: ₹0
Price change to test: -10%

Break-even volume800

boundary: a 10% price cut raises break-even 32%, because it takes 24% of the margin

Open this example

Method and limits

What it assumes

Fixed costs stay fixed across the volume range, which fails once capacity is added.
A constant price and variable cost per unit, so no volume discounts on either side.

What it deliberately does not model

Semi-variable costs, which rise in steps, break the straight-line model at the step.
A break-even in units says nothing about cash timing, and a profitable month can still be a cash-negative one.

Formula version 1.0.0 · definition 1.0.0 · India · Report a problem with this calculator

Frequently asked questions

Why does a small price cut need such a large volume increase?: Because the cut comes entirely out of the contribution margin. If the margin is forty percent of the price, a ten percent price cut removes a quarter of the margin, and the volume has to rise by a third just to stand still.
What is a healthy margin of safety?: It depends on how volatile the sales are. A business with steady demand can run close to break-even; one with seasonal or lumpy revenue needs far more room, because the margin of safety is what absorbs a bad month.