Your break-even point is the exact number of units (or amount of revenue) you need to sell to cover all your costs — no profit, no loss. Below that number, you're losing money. Above it, every additional sale is profit. Knowing this number is one of the most useful things a small business owner can calculate.
The formula
Break-even point (in units) = Fixed Costs ÷ (Price per unit − Variable cost per unit)
The denominator — price minus variable cost — is called the contribution margin. It's how much each sale actually contributes toward paying off your fixed costs, after accounting for the direct cost of making that sale.
A worked example: a small coffee cart
Suppose you run a coffee cart with these numbers:
- Fixed costs (rent for cart space, insurance, permit fees): $2,400/month
- Price per cup: $5.00
- Variable cost per cup (coffee, cup, lid, milk): $1.40
Contribution margin = $5.00 − $1.40 = $3.60 per cup
Break-even point = $2,400 ÷ $3.60 = 667 cups per month, or about 23 cups per day across a 29-day month.
Sell fewer than 667 cups in a month, and the business loses money. Sell more, and every additional cup adds $3.60 of pure profit.
Break-even in revenue, not just units
It's often more useful to know your break-even point in dollars. Using the same example: 667 cups × $5.00 = $3,335 in monthly revenue needed just to break even.
What moves the break-even point
- Raising prices — increasing the price to $5.50 raises the contribution margin to $4.10/cup, dropping the break-even point to 586 cups, a meaningful drop from a relatively small price change
- Reducing variable costs — switching to a cheaper cup supplier that saves $0.20/cup raises the margin to $3.80, lowering break-even to 632 cups
- Cutting fixed costs — negotiating rent down to $2,000/month drops break-even to 556 cups, without touching pricing or supplies at all
Why this number matters before you launch
Calculating break-even before starting a business (or launching a new product line) tells you whether the volume required is realistic. If your break-even point requires selling more units than your market can plausibly absorb, that's a signal to rethink pricing, costs, or the business model — before you've spent the money finding out the hard way.
Run your own numbers
Use the Break-Even Calculator to find your exact break-even point in units and revenue based on your own fixed costs, pricing, and variable costs.