 Margin of safety is the excess of expected sales greater than breakeven sales. It is called the margin of safety because it represents a drop in sales that the company can absorb before incurring a loss. It is used to evaluate the risk of current operations as well as the risk of any new plans. The higher the margin of safety, the less risk in the business. Margin of safety can be calculated in either units or sales dollars or both. In this example, expected sales units are 1,000 and breakeven units are 800, so the margin of safety in units is 200 units. Additionally, expected sales dollars are $50,000, breakeven sales dollars are $40,000, so the margin of safety in sales dollars is $10,000 of sales revenue. Sometimes margin of safety is presented as a percentage. The formula to calculate the margin of safety percentage is margin of safety in units divided by expected sales in units. In this example, the margin of safety percentage is 20%. We can do the same thing in sales dollars and we will get the exact same percentage.