Every business owner should know the answer to one question: how many units do I have to sell before I stop losing money? That number is your break-even point โ and it is easy to calculate.
What Is the Break-Even Point?
The break-even point is where total revenue exactly equals total costs. Below it you lose money; above it you make money.
Two types of cost matter:
- Fixed costs โ rent, salaries, insurance (constant regardless of sales)
- Variable costs โ materials, packaging, shipping (per unit)
The Break-Even Formula (in Units)
Break-Even Units = Fixed Costs รท (Selling Price โ Variable Cost per Unit)
The (Price โ Variable Cost) part is your contribution margin โ how much each sale contributes to covering fixed costs.
Example
Your product sells for $20, costs $8 to make, and your fixed costs are $10,000/month:
Contribution margin = $20 โ $8 = $12
Break-even = $10,000 รท $12 = 833 units per month
Sell 833 units and you cover everything. The 834th unit is your first profit.
Break-Even in Revenue (Dollars)
Prefer a dollar target? Use the contribution margin ratio:
Break-Even Revenue = Fixed Costs รท (Contribution Margin รท Price)
In the example above: $10,000 รท (12 รท 20) = $10,000 รท 0.6 = $16,667/month.
Lowering Your Break-Even Point
A lower break-even means less risk. Three levers:
- Raise prices โ each unit contributes more
- Cut fixed costs โ renegotiate rent, switch to variable contracts
- Reduce variable costs โ better suppliers, less waste
Try Our Tools
- Break-Even Calculator โ find your units and revenue target
- Profit Margin Calculator โ set prices that build in profit
- CAC Calculator โ know what each new customer costs
๐ก Pro Tip: Recalculate break-even whenever your costs or prices change โ at least quarterly. A product that was profitable at launch can quietly become a loss leader as supplier prices rise.
*Find your break-even point in seconds with our free Break-Even Calculator.*
