Units and revenue to break even.
Break-even units
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Break-even revenue
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Contribution margin
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Your breakdown
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Reading your contribution margin
Break-even analysis answers the most basic question any New Zealand business owner has: how much do I need to sell before I stop losing money? The engine behind it is the contribution margin, which is your selling price per unit minus the variable cost of making or delivering that unit. Whatever is left over after the variable cost is the part of each sale that goes towards paying your fixed costs, the rent, salaries, software, and insurance that you owe whether you sell one unit or a thousand. This tool divides your fixed costs by the contribution margin per unit to find the exact number of units at which sales finally cover everything, then converts that into a revenue figure.
The shape of the answer is worth internalising. A high contribution margin means each sale does a lot of heavy lifting, so you break even on low volume. A thin margin means you are running hard just to cover the fixed base, which is the classic trap of a low-price, high-volume model where a small cost increase can wipe out the maths entirely.
Covering $60,000 of fixed costs
Say you run a small product business with $60,000 of annual fixed costs. You sell each unit for $80, and each one costs you $35 in materials and direct labour. The contribution margin is $45 a unit, or about 56 percent of the price. The tool rounds the break-even up to a whole unit, because you cannot sell a fraction of one and still cover costs.
So you need to shift 1,334 units, or about $106,720 of sales, before the business turns its first dollar of profit. Every unit after that adds its full $45 margin straight to the bottom line. The chart tracks contribution piling up sale by sale until it finally tops the $60,000 fixed-cost line.
Where GST fits in
One mistake trips up almost every new business owner here: using GST-inclusive prices in the break-even maths. If you are registered for GST, the 15 percent you charge customers is never yours to keep; you collect it for Inland Revenue and pass it on. So your real selling price for this calculation is the GST-exclusive figure. In the example, if $80 were the GST-inclusive shelf price, your true price would be about $69.57, which lifts the break-even unit count. Registration becomes compulsory once your turnover passes $60,000 in any twelve-month period, and many small operators cross that line without noticing, so check your trailing revenue regularly. Below the threshold you can choose to stay unregistered and quote GST-free prices, which simplifies this analysis. The same discipline applies to your variable cost: enter it GST-exclusive too, because if you are registered you reclaim the GST on your inputs, so the real cost of a unit is the figure net of GST. Mixing an inclusive price with an exclusive cost, or the reverse, quietly distorts the margin and throws the whole break-even out.
A margin of safety check
Break-even tells you the floor, but the more useful number for managing risk is how far your actual sales sit above it. If you expect to sell 1,800 units against a 1,334 break-even, your margin of safety is 466 units, or about 26 percent of forecast volume. That cushion tells you how much sales can fall before the business slips back into a loss. A thin margin of safety on a high break-even is a warning sign: it means a quiet quarter or a single lost client tips you underwater. When I review a small business plan, this ratio matters more than the headline profit, because it measures how much can go wrong before the maths stops working.
What if my price is below my variable cost?
Then there is no break-even point at any volume, and the tool will say so. A negative contribution margin means every single sale loses money before fixed costs even enter the picture, so selling more just digs the hole faster. The only fixes are to raise the price or cut the variable cost per unit. This is a useful sanity check before launching a loss-leader: make sure it is a deliberate strategy and not an accident of mispricing.
Does break-even tell me my target profit?
Not directly, but it is one short step away. Break-even covers fixed costs and leaves you at zero. To hit a profit goal, add that target to your fixed costs before dividing by the contribution margin. If you wanted $30,000 of profit on top in the example, you would cover $90,000 instead of $60,000, which means selling 2,000 units. The same margin logic scales straight into profit planning.