What is the break-even point?
The break-even point is the level of revenue at which your business makes neither a profit nor a loss. Below it, the month closes in the red. Above it, every extra sale turns into profit.
It is one of the most useful numbers a business owner can track, because it turns the end-of-month guesswork into a clear target: how many sales do I need before the 30th to pay for everything?
How to calculate break-even
The bottom half of the formula, price minus variable cost, is your contribution margin: how much each sale leaves over to pay the fixed bills. To get break-even revenue, multiply the units by the price.
Worked example with the calculator's numbers
| Item | Amount | |
|---|---|---|
| Monthly fixed costs | $18,000.00 | |
| Average price | $80.00 | |
| Variable cost per unit | $32.00 | |
| Contribution margin | 60% | $48.00 |
| Break-even point | 375 units | $30,000.00 |
$18,000 ÷ $48 = 375 units, and 375 × $80 = $30,000 in revenue. Selling 450 units, the business is 75 units above break-even. That is a margin of safety of 16.7%: sales can drop that much before the month turns into a loss.
Three ways to lower your break-even point
- Cut fixed costs: every $1,000 you trim from the monthly bills lowers break-even revenue by $1,000 ÷ your contribution margin %. In this example, that is about $1,667 less you need to sell.
- Negotiate variable costs: suppliers, shipping and card fees hit the margin on every single sale.
- Revisit your price: a small price increase usually does more than a big jump in volume. Use the markup calculator to test it.
Don't forget to pay yourself
Your own salary as the owner is a fixed cost. Leave it out and your break-even point looks lower than it really is, so the business "breaks even" while you work for free.
Sponsored spacePut your brand in front of the people who run the numbersSmall and mid-sized business owners use Investidores S/A to make decisions on pricing, cash and investment.Advertise with us →Frequently asked questions
What counts as a fixed cost?
Everything the business pays each month no matter how much it sells: rent, payroll and payroll taxes, your own salary, accountant, software, internet, loan payments and any fixed marketing spend.
What counts as a variable cost?
Anything that only exists when you make a sale: merchandise or materials, taxes on the sale, card or marketplace fees, commissions and packaging.
What if I sell several products at different prices?
Use the average price and the average variable cost of a typical sale. A simple way: divide the month's revenue by the number of sales, and do the same with total variable costs.
What is a good margin of safety?
The higher, the better. Below 10%, one slow month is enough to push you into a loss. Above 30%, the business can absorb a real drop in sales.
Educational tool. Results are estimates based on the numbers you enter and are not a substitute for advice from your accountant.