| name | breakeven-analysis |
| description | Performs break-even analyses with fixed/variable cost breakdowns, margin calculations, and scenario modeling. Use when determining how many sales you need to cover costs. |
| allowed-tools | Read Write Glob |
| metadata | {"author":"matthewhitcham","version":"1.0"} |
Break-Even Analysis
When to Use This Skill
Use this skill when you need to:
- Calculate how many units or sales you need to break even
- Analyze fixed vs. variable costs to find the break-even point
- Model break-even scenarios for different pricing or cost structures
- Evaluate the viability of a new product, service, or business
DO NOT use this skill for full financial projections or pricing strategy. This is specifically for determining the break-even point.
Core Principle
BREAK-EVEN IS THE MINIMUM VIABLE NUMBER — IT TELLS YOU THE FLOOR, NOT THE GOAL. IF YOU CANNOT REACH BREAK-EVEN, THE BUSINESS MODEL NEEDS TO CHANGE BEFORE ANYTHING ELSE.
Phase 1: Cost Inputs
Required Inputs
| Input | What to Ask | Default |
|---|
| Product/service | "What are we analyzing?" | No default — must be provided |
| Selling price per unit | "What do you charge per unit/sale/project?" | No default — must be provided |
| Variable cost per unit | "What does each sale cost you? (materials, delivery, fees)" | No default — must be provided |
| Monthly fixed costs | "What are your monthly costs that do not change with sales volume?" | No default — must be provided |
| Time period | "Analyze monthly or annually?" | Monthly |
GATE: Do not proceed without price, variable cost, and fixed costs.
Phase 2: Break-Even Calculation
## Break-Even Analysis: [Product/Service]
### Cost Structure
| Category | Amount |
|----------|--------|
| Selling price per unit | $[X] |
| Variable cost per unit | $[X] |
| **Contribution margin per unit** | **$[X]** |
| **Contribution margin %** | **[X]%** |
| Monthly fixed costs | $[X] |
### Break-Even Point
| Metric | Value | Formula |
|--------|-------|---------|
| **Break-even units (monthly)** | **[X] units** | Fixed costs / Contribution margin |
| **Break-even revenue (monthly)** | **$[X]** | Break-even units x Price |
| Break-even units (annual) | [X] units | Monthly x 12 |
| Break-even revenue (annual) | $[X] | Monthly x 12 |
| Units per day needed | [X] | Monthly / 30 |
| Units per week needed | [X] | Monthly / 4.3 |
### Margin of Safety
At current sales of [X] units/month:
| Metric | Value |
|--------|-------|
| Current monthly units | [X] |
| Break-even units | [X] |
| Margin of safety (units) | [X] |
| Margin of safety (%) | [X]% |
Phase 3: Scenario Modeling
## Scenario Analysis
### Price Sensitivity
| Price Point | Contribution Margin | Break-Even Units | Break-Even Revenue |
|------------|--------------------|-----------------|--------------------|
| $[X] (-20%) | $[X] | [X] | $[X] |
| $[X] (-10%) | $[X] | [X] | $[X] |
| **$[X] (current)** | **$[X]** | **[X]** | **$[X]** |
| $[X] (+10%) | $[X] | [X] | $[X] |
| $[X] (+20%) | $[X] | [X] | $[X] |
### Fixed Cost Scenarios
| Scenario | Monthly Fixed | Break-Even Units | Notes |
|----------|-------------|-----------------|-------|
| Lean (cut non-essentials) | $[X] | [X] | [What gets cut] |
| **Current** | **$[X]** | **[X]** | |
| Growth (add hire/tool) | $[X] | [X] | [What gets added] |
### Variable Cost Scenarios
| Scenario | Variable Cost/Unit | Break-Even Units |
|----------|-------------------|-----------------|
| Optimized (reduce COGS) | $[X] | [X] |
| **Current** | **$[X]** | **[X]** |
| Increased (higher quality) | $[X] | [X] |
Phase 4: Action Plan
## Recommendations
### Path to Break-Even
- Current monthly sales: [X] units
- Break-even target: [X] units
- Gap: [X] units ([X]% increase needed)
### Fastest Levers
1. **[Lever]** — [Impact on break-even point]
2. **[Lever]** — [Impact]
3. **[Lever]** — [Impact]
### Timeline to Break-Even
At [X]% monthly growth rate: [X] months to reach break-even volume.
Example: Online Course ($197 price)
Costs: Variable $8/sale (processing + hosting). Fixed $3,200/month (software, ads, contractors). Contribution margin: $189/sale.
Break-even: 17 sales/month ($3,349/month revenue). At current 12 sales/month, need 42% more sales. At 10% monthly growth, break-even in 4 months.
Scenario: If price increases to $247, break-even drops to 13.4 sales/month — already profitable at current volume.
Anti-Patterns
- Forgetting hidden variable costs — payment processing fees, shipping, packaging, and platform commissions are variable costs. Include them all.
- Treating owner's salary as optional — if you plan to pay yourself, include it in fixed costs. A "profitable" business that does not pay the owner is not profitable.
- Static analysis only — always include at least 3 scenarios (price change, cost change, volume change).
- Ignoring the timeline — break-even in 2 months is great. Break-even in 24 months may mean you run out of cash first.
- Assuming linear scaling — at high volumes, variable costs may change (bulk discounts or additional infrastructure). Note the volume range where your numbers hold.
Recovery
- Break-even seems unreachable: Show which single change (price increase, cost cut, or additional revenue stream) has the biggest impact. Sometimes a 15% price increase changes everything.
- Multiple products: Calculate break-even per product, then create a blended analysis using the weighted average contribution margin.
- Service business (no clear "unit"): Define the unit as one client, one project, or one month of service. Calculate based on that.
- Pre-launch (no sales data): Use the break-even analysis to set targets. "You need X sales/month at $Y price to cover costs" becomes the launch goal.
