Pricing & margin
Margin of Safety
Formula reviewed by Tahir Asif, CMA
How far current or expected sales sit above the break-even point, as a cushion against a downturn.
Margin of safety measures the gap between actual (or forecast) sales and the break-even point — expressed either in units, revenue, or as a percentage. A larger margin means more room for sales to fall before the business starts losing money.
It's most useful as a risk indicator rather than a performance metric on its own: two businesses can have the identical margin of safety percentage while facing very different actual risk, depending on how volatile their demand is.
Margin of safety
(Actual sales − Break-even sales) ÷ Actual sales
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