Break-even and cash runway, worked through

Part 1: The three numbers you need

Before any calculation, pin down three figures. Use quotes and published prices, not guesses.

1. Price per sale. What the customer pays, before sales tax.
2. Variable cost per sale. Everything that rises with each sale: materials, direct labour paid per job, packaging, delivery, card fees.
3. Fixed costs per month. Everything you pay whether you sell or not: rent, insurance, software, utilities, base wages, loan payments, marketing commitments and owner pay.

The difference between the first two is contribution per sale: what each sale contributes towards fixed costs.

Part 2: Break-even, worked example

Take a fictional mobile bicycle-repair service in a mid-sized Canadian city. Swap the numbers for your own.

Break-even volume = $7,950 ÷ $75 = 106 jobs per month.

At five working days a week, that's roughly 24 or 25 jobs a week, or about five a day. Now you have a concrete question for your market validation work: can you realistically book five jobs a day, and how long will it take to get there?

Break-even in revenue terms

Some owners prefer a revenue figure. Divide fixed costs by the contribution margin as a percentage.

Contribution margin = $75 ÷ $110 = 68.2%. Break-even revenue = $7,950 ÷ 0.682 ≈ $11,660 per month.

Part 3: The ramp-up, where cash disappears

New businesses don't open at break-even. They climb towards it, and every month below the line costs cash.

Suppose the bicycle service builds like this:

Add up months 1 to 6 and the cumulative loss is $17,325. That's the cash you need beyond start-up costs just to survive the climb, before any buffer.

Cash runway

Runway = available cash ÷ average monthly loss.

If you have $20,000 set aside after start-up spending, and the average loss over the first six months is about $2,900, your runway is roughly seven months. That looks fine in the expected case. The next part shows why it might not be.

Part 4: Stress-test with a slow scenario

Always rerun the model with demand 30% below plan and the ramp-up taking longer.

In the slow case, month 1 brings 21 jobs instead of 30, and growth is about 10 jobs a month instead of 15. Break-even, still 106 jobs, now arrives around month 10 instead of month 7. The cumulative loss before break-even rises to roughly $30,400.

With $20,000 in reserve, the losses pass $21,000 by the end of month four, so the money runs out long before the business turns the corner. Same idea, same price, same costs. The only change is a slower climb, and the business fails.

That is the single most useful insight a model gives you. It tells you that the real risk isn't the concept. It's how quickly customers arrive, which is exactly what a demand test can measure before you commit.

Part 5: Levers that change the answer

If the slow case fails, you have four levers.

1. Lower fixed costs. A shared van, a smaller marketing commitment in month one, or a part-time start.
2. Raise contribution. A higher price, a minimum call-out fee, or better parts margins.
3. Speed the ramp. Pre-booked customers before launch, partnerships with shops that refer overflow, or a narrower area so travel time drops.
4. Hold more cash. Delay launch until the reserve covers the slow case.

Each lever can be tested. For example, a pre-sale campaign tells you whether you can start month one with 40 booked jobs instead of 20.

Part 6: Things the simple model leaves out

The arithmetic above is deliberately simple. Before you rely on it, add:

• Payment timing. If commercial customers pay in 30 days but suppliers want cash, you need more working capital.
• Seasonality. In much of Canada, a summer-heavy or winter-heavy business can see demand swing widely. Model monthly, not as a flat average. Our province pages note the regional patterns.
• Sales tax. GST/HST collected isn't yours to spend. Your CPA can confirm how it applies.
• One-off costs. Licence renewals, equipment repairs, annual insurance premiums.
• Your own life. If you're leaving a salaried job, the household budget is part of the runway.

Part 7: Turning the math into a decision

Once you have break-even and runway for both the expected and slow scenarios, the decision usually becomes clear.

• Both scenarios survive: the idea is financially feasible; the remaining question is demand evidence.
• Expected survives, slow fails: feasible only with more cash, lower costs or proof that the ramp will be fast. Test the ramp before committing.
• Both fail: the model needs a structural change, such as price, format or location, before it's worth testing further.

Put the results into your go/no-go verdict, as described in our feasibility checklist. If you'd like the model built for you, the pricing page shows how projects are scoped. Call, text or email with your three numbers from Part 1 and we'll tell you what we'd test first.