Break-Even Point
The sales volume at which total revenue exactly equals total costs — zero profit, zero loss.
The break-even point is the number of units (or dollars of revenue) a business needs to sell before it starts generating profit. Below it, fixed costs aren't fully covered; above it, every additional unit sold contributes directly to profit.
It assumes costs split cleanly into fixed and variable components, and that price and variable cost per unit stay constant across the relevant volume range — a simplification that holds reasonably well for most small and mid-size businesses within a normal operating range.
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Open the calculator →How to calculate the break-even point
There are two versions of the calculation. Use the units version when you sell one countable product at a steady price, and the revenue version when you sell several products or your price varies from sale to sale.
Both versions give the same answer, expressed in different units. The revenue version is the more portable one, because it works even when you can't point to a single unit price.
Before you calculate anything, fix three conventions in writing. First, the period: if fixed costs are monthly, volume must be monthly too. Second, what counts as fixed: rent, salaried pay, insurance, software subscriptions, loan interest and your own draw. Third, what counts as variable: materials, packaging, shipping you pay, card and marketplace fees, and sales commissions. Card fees are the item most often left out.
One more choice changes the answer: accounting break-even versus cash break-even. Accounting break-even includes non-cash costs such as depreciation in the fixed total. Cash break-even removes them and tells you the volume at which cash stops draining. Lenders and owners with thin reserves usually care about the cash version.
Worked example: a small candle business
An online candle maker sells one product at $40. Each candle costs $16 in variable costs: $8.50 for wax and jar, $2.50 for packaging, $2.00 of shipping she subsidizes, and $3.00 in payment and marketplace fees. Her fixed costs come to $7,200 a month.
| Item | Per month |
|---|---|
| Studio rent | $1,800 |
| Part-time helper | $2,400 |
| Owner draw | $1,800 |
| Software and insurance | $600 |
| Marketing | $600 |
| Total fixed costs | $7,200 |
Monthly fixed costs
| Line | Amount |
|---|---|
| Price | $40.00 |
| Variable cost | $16.00 |
| Contribution margin | $24.00 |
| Contribution margin ratio | 60% |
Contribution margin per candle
Break-even units are $7,200 ÷ $24 = 300 candles a month. Break-even revenue is 300 × $40 = $12,000, and the revenue formula agrees: $7,200 ÷ 0.60 = $12,000.
Check it by building the month from the bottom. At 300 candles, revenue is $12,000, variable costs are $4,800, and the $7,200 left over exactly covers fixed costs, so profit is zero. Candle number 301 adds $24 of profit, and every candle after it does the same. Below 300, she loses $24 for each candle she fails to sell.
Margin of safety and profit targets
Break-even is where you earn nothing, so most decisions need two follow-up numbers: how far above break-even you are, and how much volume a profit goal requires.
If she wants $3,000 a month of profit on top of her draw, she needs ($7,200 + $3,000) ÷ $24 = 425 candles, or $17,000 in sales. That is 125 candles above break-even, and each one contributes the same $24.
Suppose she actually sells 400 candles. Her margin of safety is (400 − 300) ÷ 400 = 25%, or $4,000 of revenue. Sales can fall by a quarter before she starts losing money. A thin margin of safety turns one slow month into a loss. How much cushion you need depends on how volatile demand is: a seasonal gift business needs more than a subscription business with steady renewals.
What moves the break-even point
Break-even responds to three things: price, variable cost and fixed cost. Testing each one against the same base case shows which lever matters most.
| Change | Margin per unit | Break-even units | Break-even revenue |
|---|---|---|---|
| Base case | $24.00 | 300 | $12,000 |
| Price up 10% (to $44) | $28.00 | 258 | $11,352 |
| Price down 10% (to $36) | $20.00 | 360 | $12,960 |
| Variable cost up 10% (to $17.60) | $22.40 | 322 | $12,880 |
| Fixed costs up $1,000 | $24.00 | 342 | $13,680 |
The price effect is lopsided. A 10% increase removes 42 candles from the target, while a 10% cut adds 60. Price changes hit the contribution margin directly, and the margin is a small slice of the price, so a few dollars matters a lot.
This also tells you how much volume a price rise can cost before it hurts. At 400 candles she earns $2,400 a month (400 × $24 − $7,200). At $44 she still earns $2,400 with 343 candles, so a 10% price increase pays off unless it loses more than about 14% of her volume.
Fixed costs are not fixed forever. If she passes roughly 500 candles a month and has to hire a second helper at $2,400, the break-even for that higher level of capacity becomes ($7,200 + $2,400) ÷ $24 = 400 candles. Break-even behaves like a staircase, and each step brings a new fixed-cost level.
Break-even with more than one product
With two or more products, a single break-even number is misleading, because the answer depends on the sales mix. The fix is a weighted-average contribution margin per unit.
Add a large candle at $90 with $54 of variable cost, so a contribution margin of $36. Say 60% of units sold are the small candle ($24 margin) and 40% are the large one. The weighted margin is 0.60 × $24 + 0.40 × $36 = $28.80, and break-even is $7,200 ÷ $28.80 = 250 total units: 150 small and 100 large.
| Mix (small / large) | Weighted margin | Break-even units |
|---|---|---|
| 60% / 40% | $28.80 | 250 |
| 40% / 60% | $31.20 | 231 |
| 80% / 20% | $26.40 | 273 |
Moving from a 60% large-candle share to a 20% share adds 42 units (231 to 273) to the target without any change in prices or costs. Use your real trailing mix rather than the mix you hope for, and recompute when it drifts. For the full method, use the break-even calculator, which handles several products in one run.
Break-even for a service business
Services replace units with billable hours. A consulting firm has $24,000 of monthly fixed costs, bills $150 an hour, and spends $30 of variable cost on each billed hour (payment fees, software seats, travel). The margin per hour is $120, so break-even is $24,000 ÷ $120 = 200 billable hours a month.
Then apply realization. If discounts and write-offs mean the firm collects only 90% of its rate, the effective rate is $135, the margin drops to $105, and break-even rises to about 229 hours. That gap between 200 and 229 hours comes entirely from revenue that was worked but never collected.
Then check capacity. At 70% utilization of 160 monthly hours, each consultant bills about 112 hours. Two consultants supply 224 hours, five short of the 229 needed, so the firm needs a third person or higher utilization before it breaks even. The agency break-even calculator runs this hours-based version directly.
Common mistakes
- Treating semi-variable costs as fixed. Utilities, part-time labor and shipping supplies rise with volume even if they don't rise one-for-one. Splitting them into a fixed base and a variable rate gives a truer number.
- Leaving out your own pay. Without an owner draw in fixed costs, break-even is the volume at which the business covers itself, not the volume at which it supports you.
- Missing small variable costs. In the candle example, an unrecorded $1.20 of fees per candle turns a $24.00 margin into $22.80 and moves break-even from 300 to 316 candles. Small omissions compound because they sit in the denominator.
- Assuming price and cost stay flat at every volume. Volume often costs a discount, and supplier price breaks, capacity steps and overtime all move the lines. Re-run the calculation at the volume you're actually targeting.
- Mixing periods. Annual fixed costs divided by a monthly margin, or the reverse, produces a break-even that is off by a factor of twelve. Keep every input in the same period.
- Treating break-even as the goal. At break-even you have earned nothing. Plan around the target-profit version and check the margin of safety.
What the break-even point can't tell you
Break-even tells you how much you must sell. It does not tell you whether customers will buy that much, and it assumes price, variable cost per unit and fixed costs stay constant across the volume range you are testing.
It also ignores timing. A business can be above break-even on paper and still run out of cash because it pays for inventory months before customers pay for it. For that question, look at runway. To see how long it takes to earn back an upfront investment, use the payback period. Break-even answers a narrower question than either: at what volume does each period stop losing money.
Frequently asked questions
It is the amount you have to sell in a period for total revenue to equal total costs. Below it you lose money, and above it every extra sale adds profit. In the candle example the break-even point is 300 candles, or $12,000 in sales, per month.
Break-even units = fixed costs ÷ (price per unit − variable cost per unit). Break-even revenue = fixed costs ÷ contribution margin ratio. With $7,200 of fixed costs and a $24 margin per unit, break-even is 300 units, or $12,000 of revenue at a 60% margin ratio.
Use the revenue version. Divide fixed costs by the contribution margin ratio, which is total sales minus total variable costs, divided by total sales. It works with several products at once because it uses your overall ratio rather than one price.
There is no universal number. Compare it with how much your sales swing from month to month. A business whose sales vary by 30% in a bad month needs a wider margin of safety than one with steady recurring revenue. A margin of safety of 25%, as in the candle example, means sales can fall by a quarter before a loss.
Yes. It moves whenever price, variable cost or fixed cost changes, and it steps up when growth forces new fixed costs such as another hire or a bigger space. Recalculate it whenever any of those inputs changes.
Break-even is a volume: how much you must sell in a period to cover that period's costs. Payback period is a time: how long it takes to recover a specific upfront investment out of the profit it generates. A project can have a low break-even volume and still a long payback.
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