Build the Break-Even Line
Calculate break-even units and explain the role of contribution margin.
A $49/month add-on has $14/month variable cost and $180K annual fixed cost. Break-even units = fixed costs / contribution margin per unit. Using revenue instead of contribution margin will understate the break-even point because it ignores variable cost. Step 1 Monthly contribution = $49 price - $14 variable cost = $35. This is the amount each customer contributes after variable cost. Step 2 Annual contribution per customer = $35 x 12 = $420. Match the time period of contribution margin to the fixed-cost period. Step 3 Break-even customers = $180,000 / $420 = 428.6, rounded up to 429. Round up…
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