Calculate the sales volume — in units and revenue — at which your business covers all fixed and variable costs. Essential before pricing decisions, hiring, or taking on financing.
Frequently Asked Questions
What is a break-even point?
The sales volume — in units or revenue — at which total revenue equals total costs. Below it you lose money; above it you generate profit.
How is the break-even point calculated?
Break-even units = Fixed Costs ÷ (Price − Variable Cost per Unit). Break-even revenue = Break-even units × Price. The denominator is the contribution margin per unit.
What counts as a fixed cost?
Costs that don't change with sales volume: rent, salaries, insurance, software, loan payments, depreciation. They're owed whether you sell one unit or one thousand.
What counts as a variable cost?
Costs that scale with each unit: raw materials, packaging, payment processing, sales commissions, shipping.
What is contribution margin?
Price − Variable Cost per Unit. The dollar amount each sale contributes toward covering fixed costs and, once break-even is passed, profit.
How do I use break-even to price a product?
If current price produces a break-even higher than realistic sales volume, raise price, cut variable cost per unit, or reduce fixed costs. Run scenarios for each lever.
How does financing affect break-even?
Loan payments are fixed costs, so financing raises break-even. Make sure the capital generates revenue that more than offsets the added monthly payment.
Should I include owner salary?
Yes — include a market-rate owner salary for a realistic break-even. Otherwise the analysis understates what the business needs to earn.
How often should I recalculate?
At least quarterly, and whenever a major input changes: new lease, hire, price change, or supplier cost shift.
Where can I learn more about pricing for profitability?
Read the guides on working capital loans and how business financing repayment works to understand how financing feeds into break-even math.