Definition
Break-even revenue is the revenue required to cover your fixed costs given your gross margin. It's a quick way to understand the minimum revenue needed to avoid losses.
Formula
Break-even revenue = fixed costs / gross margin
Common pitfalls
- Using net margin instead of gross/contribution margin.
- Forgetting overhead items that are effectively fixed (core tools, base salaries).
- Not updating the model after pricing or COGS changes.
How to improve break-even
- Increase gross margin (reduce COGS, improve infrastructure efficiency).
- Increase prices or move customers to higher tiers where value supports it.
- Reduce fixed costs carefully (avoid harming retention or delivery).