What is break-even analysis?

Break-even analysis calculates the point where your revenue equals your total costs — the minimum sales volume to avoid losing money. Below the break-even point, you're losing money. Above it, you're profitable. It's used to evaluate pricing, decide whether to launch a business, and measure the impact of cost changes.

How do you calculate break-even point?

Break-Even Units = Fixed Costs ÷ (Price per Unit − Variable Cost per Unit). The denominator is called contribution margin per unit. Example: if you have $10,000 in fixed costs, sell a product for $50, and it costs $20 to make, your contribution margin is $30. Break-even = $10,000 ÷ $30 = 334 units per month.

What is the break-even formula for revenue?

Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio. Contribution Margin Ratio = (Price − Variable Cost) ÷ Price. Using the example above: $30 ÷ $50 = 60% CM ratio. Break-even revenue = $10,000 ÷ 0.60 = $16,667/month. This is the dollar amount of sales needed to cover fixed costs.

What are fixed vs variable costs in break-even analysis?

Fixed costs don't change with sales volume: rent, insurance, salaried employees, loan payments, software subscriptions. Variable costs change with each unit sold: raw materials, hourly labor, shipping, payment processing fees, commissions. The distinction matters because only fixed costs affect the break-even calculation directly — variable costs reduce contribution margin.

What is a good break-even point for a small business?

There's no universal 'good' break-even point — it depends on your industry and capacity. A restaurant needs to hit break-even within 3–5 months to survive. A software product might take 12–18 months. The key metric is how far above break-even your current or projected sales are — that's called the margin of safety. A 20%+ margin of safety means you can absorb a 20% revenue drop before losing money.

Break-Even Analysis: How to Calculate Your Break-Even Point (2026)

Break-even point = fixed costs ÷ (price − variable cost per unit). This guide shows you how to calculate it, what to do with the number, and common mistakes that make it wrong.

No signup No tracking Last updated March 2026 Open Methodology →

Break-even analysis answers one question: how much do I need to sell to stop losing money? The formula is simple. Getting the inputs right is where most people go wrong.

This guide covers the formula, worked examples, common mistakes, and how to use break-even analysis to make better decisions about pricing and business viability.

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The Break-Even Formula

Break-Even (units)

Fixed Costs ÷ Contribution Margin Per Unit

Where Contribution Margin = Price − Variable Cost per Unit

Break-Even (revenue)

Fixed Costs ÷ Contribution Margin Ratio

Where CM Ratio = (Price − Variable Cost) ÷ Price

Worked Example: Coffee Shop

Monthly fixed costs	$8,500 (rent $3,500 + labor $4,000 + insurance/utilities $1,000)
Average drink price	$6.00
Variable cost per drink (coffee, milk, cup, lid)	$1.50
Contribution margin per drink	$4.50
Break-even drinks/month	$8,500 ÷ $4.50 = 1,889 drinks
Break-even revenue/month	1,889 × $6 = $11,333/month
Break-even drinks/day (26 open days)	73 drinks per day

73 drinks/day for a small coffee shop is achievable but not easy — roughly 1 drink every 8 minutes during a 10-hour day. Below that and the owner is subsidizing the business.

Fixed vs Variable Costs: Getting It Right

Most break-even analysis errors come from misclassifying costs. Semi-variable costs are the tricky ones.

Fixed Costs

Same every month regardless of sales

•Rent and lease payments
•Salaried employee wages
•Insurance premiums
•Loan and debt service payments
•Software subscriptions
•Equipment depreciation

Variable Costs

Change directly with each unit sold

•Raw materials and ingredients
•Per-unit packaging and shipping
•Payment processing fees (2–3% of revenue)
•Sales commissions
•Hourly production labor
•Cost of goods sold (COGS)

Watch Out: Semi-Variable Costs

Utilities, part-time labor, and some marketing costs are semi-variable — they have a fixed base but increase with volume. Most break-even models treat these as fixed (conservative) or split them. When in doubt, use actual monthly averages from your books.

5 Common Break-Even Mistakes

Forgetting your own labor

Owner-operators often exclude their own time from fixed costs because they "don't have a paycheck yet." This artificially lowers the break-even. Your labor has a market value — include a reasonable owner salary in fixed costs.

Using revenue, not units

A business with multiple products or service tiers needs a weighted average contribution margin — not a single product's margin. Using only your highest-margin product gives a falsely optimistic break-even.

Ignoring debt service

Loan repayments are fixed costs. If you borrowed $100,000 at 8% over 5 years, your monthly debt service is about $2,028 — that needs to be in your fixed costs.

Static analysis

Break-even changes as your cost structure changes. Raising prices, hiring a new employee, or changing suppliers all shift the break-even point. Recalculate every quarter.

Confusing break-even with profitability

Break-even means zero profit. You want to be well above it — ideally 20–30% above break-even (the margin of safety). Hitting exactly your break-even every month means one slow week breaks you.

Margin of Safety

Margin of safety = how far your actual revenue is above break-even, expressed as a percentage. It's the revenue cushion before you start losing money.

Margin of Safety = (Actual Revenue − Break-Even Revenue) ÷ Actual Revenue × 100

If your break-even is $15,000/month and you're doing $20,000, your margin of safety is 25%. Revenue can drop 25% before you lose money. Most lenders want to see 15–20% before approving loans. Below 10% and your business is fragile.

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Estimates only. These results are based on publicly available data and standard formulas. Actual costs may vary based on your specific circumstances. This calculator does not constitute financial, tax, or legal advice. Consult a qualified professional for advice on your situation.

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