Topic guide · updated 2026-08-05
Pricing, Margin and Break-Even
The arithmetic behind what you charge: contribution margin and the volume that covers your costs, cash break-even against the accounting one, the difference between margin and markup, and rates built from the hours you can genuinely bill rather than a notional working year.
Three questions sit underneath every price: what does one unit contribute, how many do I need before the business is covered, and what must I charge to earn a living.
They are arithmetic rather than judgement, which means they can be answered exactly — and the usual ways of getting them wrong are all specific and all avoidable.
None of this is data that changes. There is no rule pack behind these tools, only method, shown on the page and pinned by tests.
Contribution margin is the load-bearing idea
Every sale contributes its price minus the costs that exist only because that sale happened. That figure is contribution margin, and fixed costs divided by it is the volume at which the business covers itself. The costs most often left out are payment processing and refunds. On a small ticket the flat part of a card fee is a large share of the price — at four dollars fifty, a typical fee is close to a tenth of it.
The owner's salary belongs in fixed costs
A break-even that excludes the owner is the point at which the business covers everyone except the person running it. It is a comfortable number and a useless one. Put your own pay in at the rate you would pay a replacement. The break-even rises and becomes something you can plan against — and the business becomes one that could be stepped away from or sold.
Cash break-even and accounting break-even are different
Accounting break-even counts depreciation, which is an expense with no cash attached, and ignores loan principal, owner draws, and stock bought before it sells — all cash out with no expense recorded. Between those two points a business is profitable on paper and losing money in the bank. It is the commonest way a healthy-looking small business runs out of cash, and the size of your own gap is worth knowing.
Margin, markup, and rates
Margin is a share of price; markup is a share of cost. Pricing for a target margin by adding that percentage to cost underprices every time, and the gap widens as the target rises. Rates carry the same error in another form. Dividing a target income by a notional 2,080-hour year assumes every hour is billed, no holiday is taken and no tax is set aside. Counting only the hours you can genuinely bill typically more than doubles the honest rate.
Tools in this topic
Every calculator and explainer in this cluster, each built on verified figures with its official source linked.
Break-even
Work out how many units you need to sell before the business covers its costs. Charts the crossing point, counts your own pay as a cost, includes the card fees and refunds most calculators leave out, and separates cash break-even from the accounting one. A planning estimate from your own figures.
Margin vs markup
Margin is a share of the price; markup is a share of the cost, and pricing as if they were the same number quietly gives away a sixth of your profit. Convert between the two, price for a target margin the right way, and see the common mistake printed beside the published method.
Freelance rate
Work back from the income you want to the rate that funds it — counting overhead, a tax set-aside, and the share of hours you can genuinely bill rather than a 2,080-hour year. Shows the naive answer beside the honest one, plus day-rate and salary conversions in both directions.
Key terms
Frequently asked questions
The number alone means nothing — what matters is how far above it you expect to trade. A business five percent above break-even is one slow month from a loss; one forty percent above absorbs a bad quarter. That distance is the margin of safety, and it is the figure worth watching.
Official sources for this topic
Every figure and rule referenced above is published by one of these agencies, and each of them — not this site — determines what is actually paid.
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