Glossary

Margin of safety

How far current or expected sales sit above the break-even point, as a percentage.

It converts the break-even point into something you can plan against. A margin of safety of forty percent means sales could fall by that much before the business made a loss; five percent means a single slow month does it. Because it depends on both the break-even point and expected volume, it moves whenever fixed costs, prices or variable costs change — which makes it the natural figure to watch after a price rise or a new lease.

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