Accounting Tip: Measure Your Margin of Safety

by Greg DePersio

0 min read

The margin of safety is a financial measure that shows the amount of sales the exceeds the break-even point. This is important because it can be viewed as the amount of revenue that can be lost before the company technically starts losing money. As long as there is a buffer above the break-even point, a company is still making money. The margin of safety quantifies this buffer. It is calculated as: Margin of safety = actual revenue – break-even point. For example, if a company has $500,000 is sales and its break-even point is $350,000, the margin of safety is $150,000. So the company can afford to lose $150,000 in sales before it starts losing money.

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