Your break-even point is the number of units you must sell, or the revenue you must earn, to cover all of your costs. Divide your fixed costs by the profit each sale leaves after variable costs. If rent and salaries are 6,000 a month and each sale leaves 20 after direct costs, you need 300 sales a month to break even.
Every owner needs this number before setting a sales target, hiring or running a promotion. News readers who follow business and markets on Al Heraldo know how quickly costs can change, and your break-even point changes with them. This guide explains the formula in plain language, shows how to find your fixed and variable costs and gives you a free calculator to test your own numbers in under a minute.
In this article
Fixed Costs vs Variable Costs
| Type | What it means | Examples |
|---|---|---|
| Fixed costs | Stay the same whatever you sell | Rent, salaries, insurance, software, loan repayments |
| Variable costs | Rise and fall with each sale | Materials, packaging, shipping, card fees, commissions |
| Semi-variable | Part fixed and part variable | Utilities, phone plans, part-time labour |
The Break-Even Formula
Break-even units equal fixed costs divided by the contribution margin per unit. The contribution margin is your selling price minus the variable cost of one unit. To find break-even revenue, multiply the units by your selling price, or divide fixed costs by your contribution margin percentage.
Also read2027 Minimum Wage Increases by State: What Small Businesses Will Pay (Free Calculator)
Try the Free Break-Even Calculator
- Add up the costs that stay the same every month.
- Enter the price of one sale and the direct cost of that sale.
- Press the button to see the units and revenue you need.
How to Use the Result
- Compare the number with your current monthly sales. If you are below it, you are losing money.
- Divide it by 30 to see how many sales you need each day.
- Test price changes. A small increase in price can lower your break-even point a lot.
- Check it again whenever rent, wages or supplier prices change.
A Quick Example
Ways to Lower Your Break-Even Point
- Negotiate rent, software and supplier prices.
- Raise prices carefully on your best-selling items.
- Cut or combine products that earn a very low margin.
- Switch some fixed costs to variable ones, such as paying freelancers per project.
- Reduce waste, returns and card fees where you can.
Common Mistakes
- Forgetting your own salary in fixed costs.
- Counting a variable cost as fixed or the other way round.
- Using an old selling price after a discount.
- Ignoring taxes and seasonal changes.
- Calculating it once and never updating it.
Frequently Asked Questions
Is break-even the same as profit?
No. At break-even you earn exactly enough to cover your costs, so profit is zero. Profit starts with the next sale.
How often should I calculate it?
Every quarter, and whenever your costs or prices change.
Can I use it for a service business?
Yes. Treat one hour or one project as a unit and use its price and direct cost.
What if I sell many products?
Use an average contribution margin across your products, weighted by how many of each you sell.
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