Break-Even Analysis: The Number That Tells You If Your Business Idea Is Viable

A friend of mine quit his job to open a coffee shop. He had the branding. He had the location. He had a gorgeous Instagram page. What he didn't have was a break-even calculation. He needed to sell 340 cups of coffee per day just to cover rent, staff, beans, and equipment financing. His foot traffic maxed out at about 180 customers per day. He closed in seven months. The break-even formula would have told him this in thirty seconds. That's not an exaggeration. It's arithmetic. The formula Break-even point in units = Fixed Costs / (Price per Unit - Variable Cost per Unit) That denominator -- price minus variable cost -- is your contribution margin. It's the amount each sale contributes toward covering your fixed costs after paying for the direct cost of producing that unit. For the coffee shop: fixed costs were $8,500/month (rent, insurance, loan payments, salaries). He sold coffee at an average of $5.25, and his variable cost per cup (beans, milk, cup, lid, labor for preparation) was $2