What Is Break-Even Analysis?
Break-even analysis calculates the minimum output needed for total revenue to cover total costs. At break-even, profit is exactly zero. Every unit above break-even generates the contribution margin as pure profit — because fixed costs are already covered.
For SaaS, "units" are typically customers (or seats). Price per unit is ARPU. Variable cost per unit includes hosting, payment processing, and any per-customer support cost. Fixed costs include salaries, rent, and all overhead.
Contribution Margin
Contribution margin = Price − Variable Cost. It's the amount each sale "contributes" to covering fixed costs and profit. A 70% contribution margin means $70 of every $100 in revenue goes toward fixed costs and profit. SaaS companies typically have 70–85% contribution margins because variable costs are low (mostly infrastructure).
Break-Even vs Profitability in SaaS
In SaaS, operating break-even (revenue covers all costs) is different from unit-economics break-even (LTV covers CAC). You can be operating-positive but have terrible unit economics — or vice versa.
Operating break-even tells you when the business generates positive cash flow from operations. LTV:CAC tells you whether individual customer economics are viable. You need both.
70–85%
Typical SaaS contribution margin
30%+
Target margin of safety
Fixed/CM
Formula: fixed costs ÷ contrib. margin
2×
Revenue multiple over break-even = comfortable