Business Idea Profitability Calculator

Thirty of revenue against twelve of cost leaves eighteen per unit, and 4,500 of monthly fixed costs divided by that eighteen is 250 units a month. Sell 400 and the profit is 2,700. The number itself is easy; what makes it useful is holding it against the demand that actually exists, because a break-even above realistic demand describes a business that does not work on paper before anyone has tried to run it.

Price moves the answer more than cost does

Break-even is fixed costs over the gap between price and unit cost, so a change in price moves the gap and the revenue side together, while a change in cost moves only the gap. At the defaults, a 1% rise in unit revenue cuts break-even by 1.64%, and a 1% rise in unit cost raises it by 0.67%. The ratio between those two is exactly price divided by cost, 30 over 12, or two and a half times. The wider the margin, the more lopsided that becomes.

The result rounds up, and it has to

Break-even comes back as a whole number. On the worked example below, 6,000 of overhead against 350 of contribution is 17.14 courses, which the calculator reports as 18. Seventeen courses would bring in 5,950 of contribution against 6,000 of fixed cost, leaving 50 uncovered, so the fractional unit rounds up rather than down. On the defaults it makes no difference, since 4,500 divides into 18 exactly.

A worked example

A software training business charges 500 a course and spends 150 on materials and instructor time, leaving 350 of contribution. Monthly overhead of 6,000, covering rent, software licences and payroll, gives a break-even of 18 courses. If the market absorbs 20 a month, the headroom is two courses, about 11%, which is thin enough that one quiet month puts the business below the line. If demand runs at 12, the gap is six courses and no amount of selling effort closes it without changing the price, the cost or the overhead.

Fixed costs are the whole reason this number exists

With no fixed costs there is no break-even to find: every unit sold above its own cost is profit from the first one. The question exists because fixed costs have to be recovered before contribution turns into anything. Doubling overhead from 4,500 to 9,000 doubles the break-even to 500 units. Adding one salaried person at 3,000 a month takes it from 250 to 417, an extra 167 units to sell before the business is where it was. Which cost goes in which field therefore matters: IAS 2 counts the cost of inventories as the costs of purchase, the costs of conversion and any other cost of bringing goods to their present location and condition, and the conversion side of that can include production overhead that does not move unit by unit. Anything of that kind belongs in fixed costs here rather than in unit cost.

What the arithmetic cannot tell you

Whether the demand exists, which is the only part that matters and the only part not in the inputs. Cost structures and the conditions businesses operate under also differ enormously between economies, and the World Bank's Enterprise Surveys cover firm-level data from owners and managers in over 160 of them, which is a reminder that a fixed-cost figure or a break-even volume from one market says little about another. Beyond that: seasonal demand, price elasticity, costs that scale in steps rather than smoothly, inventory, the gap between making a sale and being paid for it, and everything about whether the business can actually be run.