Find exactly how many units — or how much revenue — you need before you start making a profit, plus how much breathing room your current sales give you.
Every unit you sell contributes some money towards covering your fixed costs — this is called the contribution margin (selling price minus variable cost per unit). Your break-even point is the number of units where total contribution exactly equals your fixed costs — no profit, no loss.
Break-even units = Fixed Costs ÷ (Price per unit − Variable cost per unit)
A small workshop has £5,000/month in fixed costs (rent, insurance, one salary), sells a product for £25, and it costs £10 in materials and labour to make each one. The contribution margin is £15/unit. Break-even is 5,000 ÷ 15 = 333 units (£8,333 revenue). To hit a £2,000 target profit, they'd need 7,000 ÷ 15 = 467 units instead. If they're actually selling 400 units, that's a 16.7% margin of safety — sales could drop by that much before the business starts losing money.
Break-even tells you the minimum. Margin of safety tells you how much cushion you actually have — a business break-even at 90% of current sales is far more fragile than one break-even at 40%, even if both are "profitable" today. It's the number worth watching when costs rise or a big customer walks.