Break-even analysis: check the target against capacity

Break-even volume equals fixed cost divided by positive contribution per unit. Before using the answer as a sales target, calculate how many units your staffed operation can deliver. If the required volume exceeds capacity, solve for a higher price, lower costs or a different operating setup and recalculate the threshold.

Use one unit and one cost period

Assume a business sells one product at $50 per unit, incurs $30 variable cost per unit and has $12,000 fixed operating cost per month. Contribution is $20 per unit, so monthly break-even is $12,000 ÷ $20 = 600 units. The SBA break-even guidance sets out this single-product formula.

List the costs in the $12,000 explicitly. If owner pay is excluded, the answer does not cover owner pay. If interest, depreciation or a target return is excluded, do not describe the threshold as covering those items. Annual costs need converting to the chosen period; a $24,000 annual fixed cost contributes $2,000 to a monthly model under an even-expense assumption.

In Excel, with fixed cost in B2, price in B3 and variable cost in B4, =B2/(B3-B4) gives the unrounded volume. For indivisible units, use =ROUNDUP(B2/(B3-B4),0) after confirming price exceeds variable cost. When fixed costs are positive and contribution is zero or negative, no nonnegative sales volume covers them; do not force a result with ABS or replace a division error with zero.

Build capacity from available production time

For this example, assume 20 working days, two production staff and eight paid hours per person per day. Paid time is 320 staff-hours. Allow 40 staff-hours for setup, cleaning, breaks and planned interruptions, leaving 280 usable production hours. Each saleable unit needs 0.4 staff-hours, giving capacity of 280 ÷ 0.4 = 700 units per month.

The unit time and usable hours are assumptions to replace with your operating records. Do not apply another downtime deduction if the measured unit time already includes that allowance. Check the slowest stage separately: enough total staff-hours does not make a machine with capacity of 550 units capable of producing 700.

The ceiling calculation is volume × contribution − fixed cost. In the higher-cost case, 700 × $15 − $12,000 = −$1,500. Calling 800 units a target does not close the 100-unit delivery gap. The base case is feasible against the assumed capacity, but customers still need to buy at least 600 units.

Recalculate when adding a shift changes fixed costs

Suppose the higher-cost case can expand to 1,000 units per month by adding a shift costing $1,500. Fixed costs rise to $13,500. At $15 contribution, the new break-even volume is 900 units. The original 800-unit threshold no longer applies once the extra shift is required.

At 900 units the expanded setup breaks even; at 1,000 it earns $1,500 after the included fixed costs. At 800 it loses $1,500. Compare those outcomes with the cost and capacity of the original setup, and include any equipment payment or recruitment delay in the cash plan. Additional capacity can improve the achievable result while increasing the volume needed to cover commitments.

Calculate the required price at current capacity

If capacity stays at 700 and variable cost is $35, the price needed to break even is $35 + $12,000 ÷ 700 = $52.142857 per unit. At a price rounded up to $52.15, 700 units contribute $12,005 and leave $5 after the included fixed costs. A price of $52.14 leaves a $2 shortfall.

This is a required-price calculation, not evidence that customers will accept the increase. If demand falls at the higher price, use the lower volume and solve again. For a target $3,000 monthly result at 700 units, the same formula becomes $35 + ($12,000 + $3,000) ÷ 700. Rounding the price up to $56.43 gives $3,001 after the included fixed costs at that volume.

Keep cash and sales mix visible

Break-even covers the costs you put into the formula. It does not show when customers pay, when stock must be purchased, or how to fund equipment and debt principal. Pair the operating threshold with a dated cash forecast. Use the contribution guide to define variable costs consistently.

For several products, a single threshold depends on the sales mix. A higher share of low-contribution items can raise the required volume even if revenue rises. The sales-mix and kitchen-capacity example shows why contribution per item and contribution per constrained minute can point to different choices.