Break-Even Point

Also known as: BEPBreak EvenBreakevenBreak-Even AnalysisContribution Break-Even

Break-Even Point (units) = Fixed Costs ÷ (Revenue per Unit − Variable Cost per Unit)

💡The Concept

The break-even point (BEP) is when total revenue equals total costs — the moment you stop losing money and start making it. For a SaaS company: BEP in customers = Fixed Costs ÷ (ARPU − Variable Cost per Customer). If your monthly fixed costs are $50K, ARPU is $100, and variable cost per customer is $20, you need 625 customers to break even ($50K ÷ $80). Below 625 customers, every month burns cash. Above 625, every customer contributes pure margin. Most SaaS companies take 2-4 years to reach BEP, and VCs typically expect a clear path to BEP within the fundraising runway.

⚠️The Trap

The trap is calculating break-even on CURRENT costs while planning for FUTURE growth. If you need 625 customers to break even today, but your growth plan requires hiring 5 engineers ($60K/month) before you reach 625, your real break-even just jumped to 1,375 customers. Every hire, every tool subscription, every office lease MOVES the break-even target. Founders who show investors '6 months to break-even' and then hire aggressively find that break-even keeps receding like a mirage. Track your 'break-even velocity' — are you approaching it or is it running away from you?

🎯The Action

Build a dynamic break-even model with two scenarios: (1) 'Flat cost' BEP: assuming no new hires or cost increases, how many customers/revenue until you break even? This is your floor. (2) 'Growth plan' BEP: including planned hires and investments, when do you actually break even? This is your real target. Update monthly. The gap between these two numbers is your 'growth cost.' If growth-plan BEP is more than 3x flat-cost BEP, your growth plan is burning more runway than it's building revenue.

⚡Pro Tips

Calculate BEP in TIME, not just units. 'We need 625 customers' is less useful than 'at our current growth rate of 50 customers/month, we break even in 12.5 months → we need 12.5 months of runway.'

Your break-even MRR is the single most important number for a pre-profitability startup. Every board meeting should start with: 'Our break-even MRR is $X, current MRR is $Y, gap is $Z, we'll close it in N months at current trajectory.'

Variable costs aren't always obvious in SaaS. AWS hosting scales with users, customer support tickets scale with customers, and payment processing takes a %. Include ALL per-customer costs in your contribution margin calculation.

🚫Common Myths

✗Myth: “Startups shouldn't worry about break-even — focus on growth”

✓Reality: Growth without a path to break-even is just expensive death. WeWork grew to $1.8B revenue without ever approaching break-even — every dollar of growth required more than a dollar of investment. The IPO collapsed when investors realized the path to profitability didn't exist. Growth should ACCELERATE break-even, not postpone it.

✗Myth: “Break-even means the business is healthy”

✓Reality: Break-even is survival, not success. A company that just barely breaks even has zero margin for error — one bad month kills it. Target 20%+ buffer above break-even (operating margin) to handle seasonality, economic downturns, and unexpected costs.

📊Real-World Case Studies

🐵

Mailchimp

2001-2019

success

Mailchimp is the gold standard of bootstrapped break-even management. Founded in 2001, they never raised venture capital. They reached break-even within their first year by keeping the team small (3 people) and charging $200-500/month for email marketing services. They reinvested profits into a freemium model in 2009 — which temporarily hurt cash flow but ultimately scaled them to 800,000 paying customers. They maintained profitability throughout and were acquired by Intuit for $12 billion in 2021.

Time to First Break-Even

11 months

Total VC Raised

Revenue at Acquisition

$800M+

Acquisition Price

$12B

💡 Lesson: Mailchimp proved that reaching break-even early and staying profitable creates compounding optionality. They could invest in freemium BECAUSE they were profitable — the existing revenue funded growth experiments. Companies that never reach break-even are prisoners of their fundraising cycle.

Source →

🏢

WeWork

2010-2019

failure

WeWork grew to $1.8 billion in revenue but never approached break-even. Their model: sign 15-year leases (fixed cost), fill with members on month-to-month terms (variable revenue). Each new location required $3-5M in upfront buildout before generating any revenue. They opened 739 locations by 2019, burning $3.5 billion. The break-even per location required 80%+ occupancy for 3+ years — but average occupancy was 72% and member churn was 50%/year. The math never worked: the break-even point kept moving further away with each new location.

2019 Revenue

$1.8B

2019 Net Loss

$3.5B

Per-Location Buildout Cost

$3-5M

Required Occupancy for BEP

80%+

💡 Lesson: WeWork's break-even was structurally unreachable: high fixed costs (15-year leases), low switching costs (month-to-month members), high churn (50%/year), and capital-intensive expansion that increased fixed costs faster than revenue grew. Growth without a decreasing path to break-even is a Ponzi scheme funded by venture capital.

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