Budget, Pricing, and Break Even for Your First Year
Your first year in business sets the financial tone for everything that follows. This guide explains how to build a practical budget, choose a pricing approach that reflects costs and value, and calculate break-even so you know when revenue can reliably cover expenses. Use it to outline realistic numbers for a U.S.-based startup.
Your first 12 months will likely bring uneven sales, upfront fees, and decisions that lock in costs for the rest of the year. A clear plan for budgeting, pricing, and break-even can reduce surprises and help you time investments. The steps below translate common U.S. startup expenses into a simple framework—so you can estimate monthly cash needs, set prices that protect margins, and track when your business begins covering its own costs.
Start a Business Guide: Your Year‑1 Budget
A practical budget starts by separating fixed from variable costs. Fixed costs are the bills that arrive regardless of sales (rent, software subscriptions, licenses, insurance, website, and payroll for owners or salaried staff). Variable costs scale with sales (materials, packaging, shipping, payment processing fees, sales commissions). For many U.S. startups, fixed costs dominate early months, so mapping them month by month helps you size the runway you need to operate confidently.
Build a simple worksheet with columns for Month, Fixed Costs, Variable Costs, Revenue, and Cash Balance. Add realistic line items: formation and licensing fees, accounting software, marketing, initial inventory or equipment, and payroll taxes. As a rule of thumb, plan a contingency of 10–20% of total monthly costs and aim for at least three to six months of fixed costs in reserve. Include one‑time purchases (e.g., a laptop) separately so they don’t distort ongoing monthly spending.
Start a Business Article: Pricing Methods
Pricing should cover costs and reflect value. A simple starting point is cost‑plus: Unit Price = Unit Cost + Markup. If your product costs $18 to produce and you add a 60% markup, your price is $28.80. But test value‑based and competition‑aware pricing too. Value‑based looks at the outcome for customers; for services, packaging your time and expertise into outcomes can support healthier margins. Competition‑aware pricing ensures you remain credible in your market while protecting contribution margin (Price − Variable Cost per unit). In the United States, remember to account for sales tax obligations by state, and include payment processing fees that typically run 2–3% of the transaction value.
start a business info: Break-even math
Break-even is where total contribution covers fixed costs. Use: Break‑even units = Fixed Costs ÷ (Price − Variable Cost). For a service, use hours or projects instead of units. Example: If monthly fixed costs are $6,000, your price is $60, and variable cost per unit is $20, contribution is $40, and break‑even volume is 150 units. To estimate time to break even, divide your total startup fixed outlays (including one‑time costs) by expected monthly contribution. Track this monthly so you can adjust prices, reduce costs, or shift mix before a shortfall becomes serious.
Here are common startup services and typical entry-level costs in the United States.
| Product/Service | Provider | Cost Estimation |
|---|---|---|
| LLC formation service | ZenBusiness | From $0–$199 service fee + state fee |
| LLC formation service | Incfile | From $0 service fee + state fee |
| Registered agent | Northwest Registered Agent | About $125/year |
| Accounting software | QuickBooks Simple Start | About $30/month list price |
| Accounting software | Wave | $0 core accounting; pay-as-you-go payments |
| Payroll | Gusto (Simple plan) | About $40/month + $6 per employee |
| Online payments | Stripe | About 2.9% + 30¢ per online transaction |
| Payments (in person) | Square | About 2.6% + 10¢ in person; 2.9% + 30¢ online |
| Domain registration | Namecheap | About $10–$15/year for .com |
| Website builder | Squarespace | About $16–$23/month (annual billing) |
Prices, rates, or cost estimates mentioned in this article are based on the latest available information but may change over time. Independent research is advised before making financial decisions.
Real‑world pricing insights: fixed costs like software and insurance are predictable, but variable costs often surprise new owners. Payment processing fees scale directly with sales, shipping can fluctuate with fuel surcharges, and labor for fulfillment or service delivery may rise at busy times. If your offer is price sensitive, simulate a few scenarios: a pessimistic month (50% of expected sales), a base case, and an optimistic month (150%). This stress test clarifies the working capital needed to cover inventory or payroll without relying on emergency credit.
Conclusion: Bring the numbers together in a living model and update weekly in your first quarter. Use local services in your area for licenses, permits, and professional advice, and reconcile actuals against your plan each month. If you document assumptions, track contribution margin, and adjust prices or costs early, your first‑year runway, pricing, and break‑even point remain manageable—even when sales don’t arrive on a perfect schedule.
