Scenario presets
Inputs
Results
No data
- Break-even units
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- Break-even sales
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- Margin of safety (sales)
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- Margin of safety (%)
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- Margin of safety (units)
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- Contribution margin per unit
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- Operating profit
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- Degree of operating leverage
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Margin of safety % by volume and price
| Units \ Price | -20% | -10% | Base | +10% | +20% |
|---|
Operating profit by fixed cost and variable cost
| Fixed \ Variable | -20% | -10% | Base | +10% | +20% |
|---|
Formulas and worked example
- Break-even units = Fixed costs / (Price - Variable cost)
- Margin of safety = Actual sales - Break-even sales
- Margin of safety % = Margin of safety / Actual sales
- Degree of operating leverage = Contribution margin / Operating profit
A cafe sells 6,500 items at $6.50 with $2.40 variable cost and $18,000 fixed costs. Contribution is $4.10 per unit, so break-even is 4,391 units ($28,537). Margin of safety is $13,713, or 32.5% of sales.
Self-check quiz
1. Margin of safety is measured against:
2. Raising fixed costs while sales stay flat will:
3. A margin of safety of 0% means:
Frequently asked questions
What is the margin of safety?
The margin of safety is the amount by which actual or budgeted sales exceed break-even sales. It shows how far sales can fall before the business starts losing money.
How do you calculate the margin of safety percentage?
Margin of safety percentage equals actual sales minus break-even sales, divided by actual sales. A result of 25 percent means sales can drop a quarter before profit reaches zero.
Why does a high fixed cost base shrink the margin of safety?
Higher fixed costs raise break-even sales, which moves break-even closer to actual sales. The same sales level then leaves a smaller cushion and a higher degree of operating leverage.
What is a good margin of safety?
Many analysts treat under 10 percent as thin and over 25 percent as strong, but the right level depends on how volatile demand is in the industry.