Formula
margin of safety = (current units − break-even units) / current units
Margin of safety
Margin of safety is how far sales can fall before a business reaches its break-even point, expressed as a percentage of current volume.
Worked example
Selling 400 units against a break-even of 320 gives a margin of safety of 20 percent.
It is the more useful of the two figures month to month, because it states the size of the cushion rather than the location of the cliff.
It shrinks with every fixed cost added, which makes it a quiet early warning that break-even analysis alone does not give.
Related terms
Keep this number live
Plainhub computes margin of safety from money you record in plain words, so it is current when you need it rather than the night before a board meeting.
Build your model