How this calculator works
Measure how far actual or budgeted sales sit above break-even sales. This is the operating, sales-based margin of safety. Enter sales totals directly or derive break-even from unit selling price, variable cost, volume and fixed costs. Negative results show a sales shortfall rather than a cushion.
Formula
Sales margin of safety = sales - break-even sales. Ratio = margin / sales. Break-even units = fixed costs / (selling price - variable cost). Unit margin of safety = units sold - break-even units.
Worked example
$200,000 sales above $150,000 break-even sales leave a $50,000 cushion, or 25%. At 10,000 units sold for $20, $12 variable cost and $60,000 fixed cost, break-even is 7,500 units and the cushion is 2,500 units.
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Frequently asked questions
Can the margin be negative?
Yes. It indicates that current sales are below break-even. A 10% shortfall does not mean there is a positive safety cushion.
How is unit margin calculated?
Subtract break-even units from actual units. Selling price and variable cost must give a positive contribution per unit.
Does this value an investment?
This page analyses business sales and break-even. The intrinsic value page computes an investment margin of safety against an estimated share value.