Break-even analysis explained
Break-even is the point where a business stops losing money and starts making it. Knowing yours turns pricing, cost, and sales-target decisions from guesses into arithmetic.
Skip the math — the free break even calculator runs this from your own figures.
Open the free calculator →What break-even actually tells you
Your break-even point is the amount you have to sell to exactly cover all your costs — no profit, no loss. Sell one unit more and you're in profit; one less and you're losing money.
It's one of the most useful numbers a small business can know, because it converts a vague 'are we selling enough?' into a precise target you can measure against every month.
Fixed costs vs variable costs
Break-even rests on splitting costs in two. Fixed costs stay roughly the same no matter how much you sell — rent, salaries, software, insurance. Variable costs rise with each sale — materials, packaging, payment fees, shipping.
Getting this split right is most of the work. Once you know your fixed costs per month and your variable cost per unit, the formula falls out naturally.
The formula
First find your contribution margin per unit: selling price minus variable cost per unit. That's what each sale contributes toward covering fixed costs.
Then: break-even units = fixed costs ÷ contribution margin per unit. Multiply by price to get break-even revenue. If your fixed costs are $6,000/month, you sell at $60, and each unit costs you $25 to make, your contribution margin is $35 and you break even at 6,000 ÷ 35 ≈ 172 units a month.
Using it to make decisions
Break-even is really a pricing and planning tool. Raise your price and the contribution margin grows, so you break even on fewer sales. Cut a fixed cost and the target drops. Model these before you commit, and you see the effect on the required sales volume instantly.
It also sets a floor: if break-even is above what you can realistically sell, the plan doesn't work at that price and cost structure — better to learn that on a spreadsheet than after signing a lease.
Margin of safety
Once you know break-even, compare it to your actual (or expected) sales. The gap between them is your margin of safety — how far sales can fall before you slip into a loss.
A thin margin of safety means a small dip puts you underwater; a wide one means resilience. The free calculator below computes your break-even units, break-even revenue, profit at a target volume, and margin of safety from your own numbers.
Questions
What if I sell lots of different products?
You can still break even using a blended contribution margin — the average margin across your product mix, weighted by how much of each you sell. It's less precise than a single-product calculation, but it gives a realistic overall target. If your products have very different margins, it's worth checking break-even for your main lines individually too.
Does break-even include my own wage?
It should, if you rely on that income. If you pay yourself a set salary, include it in fixed costs so break-even reflects covering your pay too. If you take whatever profit is left instead, then classic break-even (covering costs with zero profit) won't include your wage — so you may want to calculate the sales needed to hit your target income on top of break-even, not just break-even itself.