Before you begin
Bring a product price, variable unit costs, monthly fixed costs and expected receipt/payment dates. All numbers below are fictional.
What this lesson covers
- Use contribution to calculate a simple break-even quantity.
- Keep fixed costs outside unit variable costs in the same model.
- Identify a job's earliest cash shortfall and an appropriate response.
Recommended preparation
01 / Key concepts
How it works
A profitable order can still create a cash shortage when you buy lumber today and receive the balance weeks later. Use two views: contribution to recurring costs, and dated cash movements. Keep deposits, revenue, taxes and available cash distinct in your records. Payment terms need to fit the job and applicable local rules.
- Contribution per unit
- Selling price less the costs that vary with each unit, available to cover fixed costs and then profit.
- Cash gap
- A period when required payments occur before enough cash has been received.
1. Build one consistent break-even model
SBA's unit formula divides fixed costs by price minus variable unit cost. Include the relevant per-sale fees and per-unit labor in variable cost when they behave that way in your model. Do not also count the same costs as fixed. If contribution is zero or negative, selling more of that item cannot recover positive fixed costs. A changing product mix requires a more detailed model.
Source: U.S. Small Business Administration — Plan your business
2. Compare required sales with capacity
Round the break-even quantity up to a whole saleable unit. Compare it with hours, material supply and likely customer demand. A calculation requiring forty tables a month is not useful for a shop that can build four. Adjust the offer or cost structure instead of treating the required number as a sales forecast.
3. Put the cash on dates
For a custom job, list materials, subcontracting, delivery and other payments when they are actually due. Then list the agreed customer receipts on their expected dates. Show the running balance. Discuss payment stages before accepting the job; confirm applicable deposit limits and terms locally. Do not assume a universal 50% deposit rule.
Source: U.S. Small Business Administration — Manage your business
4. Review the balance before releasing capacity
Track amounts due and received in the job record, keep tax or other amounts owed out of spendable cash and plan a buffer for delays. If a receipt slips, revise the forecast and contact the customer through the agreed process. Do not silently fund an earlier shortfall using an unrelated customer's deposit.
Key points
- Use contribution to calculate a simple break-even quantity.
- Keep fixed costs outside unit variable costs in the same model.
- Identify a job's earliest cash shortfall and an appropriate response.
02 / Worked example
Two views of a small-shop cash decision
Illustrative examples, deliberately separate: a repeat product sells for $80 with $44 variable cost and $720 monthly fixed cost. A different custom job has a $240 initial receipt and a $300 materials payment before its final receipt.
| View | Calculation | Result |
|---|---|---|
| Repeat-product contribution | $80 − $44 | $36 per unit |
| Repeat-product break-even | $720 ÷ $36 | 20 units; before profit |
| Custom-job cash gap | $240 − $300 | $60 needed before other outflows |
| Cash planning response | Resolve the $60 gap before ordering | Use planned working cash or agree lawful terms |
03 / Business exercise
Apply the method
Use your own shop information or the illustrative scenario. Prepare drafts and check assumptions before making purchases, publishing posts or contacting customers.
- Build a fixed-versus-variable cost list for one repeat product.
- Calculate break-even and compare required production hours with available capacity.
- Create dated cash-in and cash-out lines for a separate custom order.
- Identify the lowest running balance and resolve any funding gap before committing purchases.
Common mistakes
- Counting loaded overhead in unit cost and again in monthly fixed costs.
- Treating all deposits as immediately available profit.
- Using a break-even quantity as a prediction of demand.
Take it further
Stress-test a delayed final payment and a higher material bill. Write which purchases or production dates would need to change.
Business action checklist
Record your evidence and next decision as you work through each action.
- Build a fixed-versus-variable cost list for one repeat product.
- Calculate break-even and compare required production hours with available capacity.
- Create dated cash-in and cash-out lines for a separate custom order.
- Identify the lowest running balance and resolve any funding gap before committing purchases.
04 / Review questions
Review the key decisions
Consider each question, then compare your answer with the explanation. Return to the worked example whenever you need it.
1. At $36 contribution, how many units cover $750 fixed cost?
View hint
Round up after division.
View explanation
$750 ÷ $36 = 20.83, so 21 whole units under these assumptions.
2. Can increasing volume fix a negative unit contribution?
View hint
Every extra unit repeats the same loss.
View explanation
No. Revise price or variable costs first; otherwise each additional sale increases the shortfall.
05 / Project notes
Notes for your next project
Check off the topics you have reviewed and record the evidence, assumptions and next actions for your business. This is your personal learning record.
Record: Cost classification, unit contribution, break-even quantity, capacity, payment dates and lowest cash balance.
No notes recorded. Use this space for your observations.
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Put the lesson to work
Use the relevant tools below with your own figures. Dashboard destinations require sign-in and may depend on your plan. External social accounts and publishing are managed in their own platforms.
Sources & further study
WoodWorkCalc writes the exercises and illustrative examples. Named historical cases are attributed separately. These sources support the principles identified in the lesson; their publishers do not endorse WoodWorkCalc. Guidance and platform features can change. Sources retain their own copyright and licensing terms.
- U.S. Small Business Administration — Plan your business (opens new tab)
Market research, startup-cost planning and the fixed-cost/contribution break-even formula. WoodWorkCalc supplies the original shop scenarios and calculations.
U.S. Small Business Administration. Plan your business. Accessed September 14, 2026.
- U.S. Small Business Administration — Manage your business (opens new tab)
Business finance, marketing, taxes and employment topics; a starting point for questions that need local or professional guidance.
U.S. Small Business Administration. Manage your business. Accessed September 14, 2026.