How to Calculate Break-Even Point for Your Business
Understand how to calculate the break-even point for your business so you know exactly how much you need to sell to cover all expenses.
The break-even point is the moment when your total revenue equals your total costs — you're not making a profit, but you're not losing money either. Knowing this number is essential for making informed business decisions.
What Is the Break-Even Point?
The break-even point tells you the minimum number of units you need to sell (or the minimum revenue you need to generate) to cover all your costs.
The difference between the selling price and the variable cost per unit is called the **contribution margin**.
Understanding the Components
Fixed Costs Costs that stay the same regardless of how much you sell: - Rent - Salaries - Insurance - Software subscriptions - Loan payments
Variable Costs Costs that change based on the number of units sold: - Materials or raw goods - Packaging - Shipping - Transaction fees - Sales commissions
Contribution Margin The amount each unit sale contributes toward covering fixed costs:
Example Calculation
- Fixed costs: $5,000/month
- Selling price: $50/unit
- Variable cost: $20/unit
- Contribution margin: $50 − $20 = $30
You need to sell at least 167 units per month to cover your costs.
Break-Even Revenue
You can also calculate the break-even revenue:
Break-even Revenue = 167 × $50 = $8,350
Why Break-Even Analysis Matters
- 1Launch decisions — Know if a new product or business is viable.
- 2Pricing strategy — Understand how price changes affect profitability.
- 3Cost management — See the impact of cost reductions on your bottom line.
- 4Sales targets — Set realistic sales goals based on data.
- 5Investor conversations — Demonstrate your understanding of business fundamentals.