Break-Even Analysis

Overview

Wilson Tools Used

• spending_summary

  — aggregate expenses by category to classify as fixed or variable

• transaction_search

  — pull revenue data and detailed expense transactions for classification

Workflow

1. Ask for the analysis period (recommend at least 3 months for accuracy) and average selling price per unit if applicable.
2. Use

   spending_summary

   to get all expense categories and totals.
3. Use

   transaction_search

   to pull total revenue for the period.
4. Classify each expense category:
   • Fixed costs: rent, salaries, insurance, software subscriptions, loan payments — costs that stay the same regardless of sales volume
   • Variable costs: materials, shipping, payment processing fees, sales commissions, packaging — costs that scale with sales volume
5. Calculate:
   • Total Fixed Costs per month
   • Variable Cost Ratio = Total Variable Costs / Total Revenue
   • Contribution Margin Ratio = 1 - Variable Cost Ratio
   • Break-Even Revenue = Fixed Costs / Contribution Margin Ratio
   • Break-Even Units = Break-Even Revenue / Price Per Unit (if applicable)
6. Present the analysis:

BREAK-EVEN ANALYSIS — [Period]
═══════════════════════════════════════
Monthly Fixed Costs
  Rent                           $2,000
  Salaries                       $8,000
  Software                         $500
  Insurance                        $300
  Total Fixed                   $10,800

Variable Cost Ratio                 35%
Contribution Margin                 65%

BREAK-EVEN REVENUE            $16,615/mo
Break-Even Units              166 units @ $100/unit

Current Revenue               $22,000/mo
Margin of Safety                  24.5%
═══════════════════════════════════════

1. Calculate Margin of Safety = (Current Revenue - Break-Even Revenue) / Current Revenue * 100.
2. Show sensitivity: what happens if fixed costs increase 10%, or variable costs rise 5%.

Without Wilson

1. Export 3+ months of transactions from your bank as CSV.
2. In a spreadsheet, add a "Cost Type" column: mark each expense as "Fixed" or "Variable" (leave income rows blank).
3. Monthly Fixed Costs:

   =SUMIFS(Amount, CostType, "Fixed") / NumberOfMonths

   (use absolute values).
4. Monthly Variable Costs:

   =SUMIFS(Amount, CostType, "Variable") / NumberOfMonths

   .
5. Monthly Revenue:

   =SUMIFS(Amount, Amount, ">0") / NumberOfMonths

   .
6. Variable Cost Ratio:

   =VariableCosts/Revenue

   .
7. Break-Even Revenue:

   =FixedCosts/(1-VariableCostRatio)

   .
8. If you sell units at a known price: Break-Even Units =

   =BreakEvenRevenue/PricePerUnit

   .
9. For a quick check, use the SBA break-even calculator at sba.gov/business-guide/plan-your-business/calculate-your-startup-costs.

Important Notes

• Some costs are semi-variable (e.g., electricity — base cost is fixed, usage varies). Assign these to whichever category dominates, or split them.
• Break-even assumes a constant product mix. If you sell multiple products at different margins, use a weighted average contribution margin.
• Service businesses often have very low variable costs (mostly labor, which may be fixed). The break-even for a solo consultant is essentially: Fixed Costs / Hourly Rate = Hours needed per month.
• Revisit this analysis quarterly. Fixed costs creep up as you add tools, staff, and space.