Unit Economics 2026: The Capacity Step That Breaks It

Contribution is a unit economics fact and profit is not

Contribution per unit is price less every cost that rises when you make one more. Everything that does not rise belongs in a fixed base, and the fixed base is what contribution has to cover before any profit exists.

The classification is the part that goes wrong, and it goes wrong in one direction. Costs that look fixed are often variable at a distance, and costs that look variable are often fixed in steps. Deloitte's published five-step approach makes assumption hunting its second step, named "Identify the underlying assumptions", checked 30 September 2026 at deloitte.com. Which costs move with volume is the assumption that matters here.

Three questions settle it for any cost line.

1. If volume doubles tomorrow, does this line double? If yes it is variable.
2. If volume falls to zero next month, does this line go to zero? If no it is fixed.
3. Is there a volume at which this line jumps? If yes it is a step cost, and the step has to be written down with its threshold.

The third question is the one nobody asks, and it is where this page ends up.

The roaster's unit economics, line by line

A specialty coffee roaster sells to cafes at 11.40 dollars a pound. Build the unit before anything else.

Variable cost is 4.10 plus 0.62 plus 0.95 plus 0.48, which is 6.15 dollars. Contribution is 11.40 minus 6.15, which is 5.25 dollars a pound, or about 46 percent of price.

Annual fixed cost is 1,480,000 dollars: the lease, the roaster depreciation, two salaried staff, insurance and the sales team. Breakeven volume is 1,480,000 divided by 5.25, which is 281,905 pounds, rounding up to the whole pound.

The roaster currently sells 340,000 pounds. Contribution is 340,000 times 5.25, which is 1,785,000 dollars, and profit is 1,785,000 minus 1,480,000, which is 305,000 dollars. Charles River Associates asks candidates to "show your math", checked 30 September 2026 at crai.com, and a unit build written in this order is the cheapest way to comply, because each line is checkable on its own.

A published case interview breakeven, and the convention inside it

Bain publishes a breakeven on its coffee shop case, and the convention it uses is worth knowing because it changes the answer by a factor of two and a half.

The case gives a price of 3 pounds a cup, a variable cost of 1 pound a cup, 163,740 pounds to run the shop for a year and 245,610 pounds to open it. The published algebra adds both cost lines against a 2 pound unit margin and reaches "Q = 204,675 cups to breakeven", checked 29 September 2026 at bain.com.

We recalculated it: 163,740 plus 245,610 is 409,350, divided by 2 is 204,675. The firm's arithmetic lands exactly. What the convention does is put the entire cost of opening into the first year, so the published figure is a capital recovery threshold rather than an operating one.

Drop the opening cost and the same shop breaks even at 163,740 divided by 2, which is 81,870 cups. The ratio between the two thresholds is 409,350 over 163,740, which is 2.5 exactly. A candidate who assumes the operating convention when the interviewer means the capital one is out by 150 percent on a calculation that is otherwise flawless.

So the question to ask before computing any breakeven is which costs go in the numerator. Our roaster's 1,480,000 dollars is operating cost only, which is why 281,905 pounds is an operating threshold.

The capacity step that destroys $404,750

Here is what a contribution margin cannot show you. The roaster's two machines can put through 380,000 pounds a year at current shift patterns. At 340,000 pounds the plant runs at about 89 percent utilization, which already feels tight to the operations manager.

At exactly 380,000 pounds, profit is 380,000 times 5.25 minus 1,480,000, which is 1,995,000 minus 1,480,000, so 515,000 dollars. That is the best this configuration can do.

One more pound needs a third roaster. That costs 410,000 dollars a year in lease, depreciation and a second shift supervisor, and it lifts capacity to 700,000 pounds. Fixed cost becomes 1,890,000 dollars.

At 381,000 pounds profit is 2,000,250 minus 1,890,000, which is 110,250 dollars. So one pound of extra volume takes profit from 515,000 to 110,250, a fall of 404,750 dollars. Nothing about the unit changed. Contribution is still 5.25 dollars a pound at 381,000 as it was at 380,000.

New breakeven after the step is 1,890,000 divided by 5.25, which is 360,000 pounds exactly. The step alone requires 410,000 divided by 5.25, which is 78,095 pounds of extra volume just to stand still.

The volume the step actually demands

Standing still is the wrong bar, because the business was earning 515,000 dollars before the step. Restoring that profit requires contribution of 515,000 plus 1,890,000, which is 2,405,000 dollars, so 2,405,000 divided by 5.25, which is 458,095.2 pounds. Pounds are whole, so the requirement rounds up to 458,096, and that volume yields 2,405,004 dollars of contribution and 515,004 of profit.

That is 458,096 over 380,000, or 20.6 percent more volume than the point at which the profit was being earned in the first place. A sales plan that promises 10 percent growth walks the business straight into the trough and leaves it there for two years.

So the recommendation on a prompt like this is rarely about the unit at all. Either find 20.6 percent of volume before committing to the machine, or find a way to buy capacity in smaller pieces: a night shift on the existing roasters, or contract roasting for the incremental volume at a lower contribution. Contract roasting at 3.80 dollars of contribution instead of 5.25 gives up 1.45 dollars a pound and requires no step, so 78,095 pounds of incremental volume costs 113,238 dollars of forgone contribution against 410,000 dollars of new fixed cost.

Oliver Wyman's published method has a step for using numbers and a step for picking an approach and showing why it beats the alternatives, checked 30 September 2026 at oliverwyman.com. The contract roasting comparison is that step, and it exists only because the step cost was written down.

What a price change really costs in volume

One more trap, and it is the one we have gotten wrong in public before. Cut the wholesale price by 50 cents, to 10.90 dollars. Contribution falls to 4.75 dollars a pound.

That price cut is 0.50 over 11.40, which is 4.4 percent. The margin given up is 0.50 over 5.25, which is 9.5 percent. The volume needed to hold the same total contribution is 1,480,000 divided by 4.75, which is 311,579 pounds, against 281,905 before. That is 10.5 percent more volume.

Three different percentages, and only the last one answers the question. 4.4 percent is the price move. 9.5 percent is the share of margin surrendered. 10.5 percent is the volume required, and it is larger than the margin share because the denominator shrank: one divided by 0.905 is 1.105.

Say the number you mean. A 4.4 percent price cut needs 10.5 percent more volume to stay whole, and the difference between 9.5 and 10.5 is the kind of gap that turns a correct calculation into a wrong recommendation.

Where unit arithmetic is scored

The weights below are ours, read from the rubric code our own grader runs. No consulting firm publishes a marking scheme, so none of this is Bain's view of its own breakeven.