Lesson 5 of 10 14 min
Revenue Models and Costs
Fixed vs. variable costs, and finding your break-even point.
Written by Mateo LermaLast reviewed 2 sourcesEditorial standards
All lessons in Entrepreneurship
Step 1: The lesson
What is a break-even point, and how do you find it?
Fixed costs stay the same no matter how much you sell — equipment, a booth fee, website hosting. Variable costs rise with each sale — materials, packaging, payment fees.
Key term
Contribution per unit
Price − variable cost per unit. It's how much each sale contributes toward covering fixed costs, and then toward profit.
Key term
Break-even point
The number of sales needed to cover fixed costs: fixed costs ÷ contribution per unit. Below it, you lose money; above it, you profit.
Your revenue model is how and when customers pay: one-time purchases, subscriptions, memberships, or a mix. Recurring revenue is more predictable — and makes break-even easier to plan.
Know your number
Every founder should be able to answer: "How many sales do I need this month to break even?"
Step 2: See it
Marcus's month at different volumes ($12 price, $5 cost per pair, $300 fixed)
20 pairs: revenue $240, total costs $400, profit −$160. 43 pairs: revenue $516, total costs $515, profit $1. 80 pairs: revenue $960, total costs $700, profit $260.
| Revenue | Total costs | Profit | |
|---|---|---|---|
| 20 pairs | $240 | $400 | −$160 |
| 43 pairs (break-even) | $516 | $515 | $1 |
| 80 pairs | $960 | $700 | $260 |
Step 3: Real-world example
Marcus finds his break-even
- Fixed costs: $300 a month (a weekend market booth, supplies kit, and a few ads).
- Price: $12. Variable cost: $5. Contribution: $7 per pair.
- Break-even: $300 ÷ $7 ≈ 43 pairs a month.
Every pair after the 43th adds $7 of profit. Marcus also starts a "Clean Club" — $30 a month for 3 cleans — so part of his revenue is locked in before the month starts.
Step 4: Try it
Break-even calculator
Start with Marcus's numbers, then change the price. Notice how much a few dollars moves the break-even point.
Your numbers
Costs you pay no matter how much you sell: rent, subscriptions, equipment.
What each sale costs you: materials, packaging, fees.
Results
Units to break even each month
43
That's $516 in sales
Profit per unit (contribution)
$7.00
Contribution margin
58%
of each sale covers fixed costs and profit
Every sale after unit 43 adds about $7.00 of profit.
Educational calculator, not financial advice. Results are hypothetical estimates based on the numbers you enter.
Step 5: Knowledge check
Quiz: Revenue Models and Costs (3 questions)
Answer each question, then check your answer to see the explanation. Retake it as many times as you like.
Question 1 of 3
Step 6: Summary
Summary: Revenue Models and Costs
Fixed costs don't change with sales; variable costs do. Contribution per unit is price minus variable cost, and break-even is fixed costs divided by contribution. Revenue models like subscriptions make income more predictable.
Step 7: What you should remember
Key takeaways: Revenue Models and Costs
- Fixed costs stay put; variable costs grow with sales.
- Contribution = price − variable cost.
- Break-even = fixed costs ÷ contribution.
- Recurring revenue makes planning easier.
Key terms in this lesson
Finished the lesson?
Mark it complete to track your progress.
Sources and further reading
Rules, rates, and official figures in this lesson are based on these sources. People and numbers in examples are hypothetical.
- 1.Plan your business (opens in a new tab)
U.S. Small Business Administration · sba.gov
- 2.Manage your business (opens in a new tab)
U.S. Small Business Administration · sba.gov
Cite this lesson
Financial Literacy Club. (2026, September). Revenue models and costs. https://learnwithflc.org/courses/entrepreneurship/revenue-and-costs
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