Break-Even Analysis: How to Find Your Break-Even Point
Before you invest money into a product, service, or business, you need to answer one critical question: how many units do I need to sell before I start making a profit? That answer is your break-even point.
What Is the Break-Even Point?
The break-even point is where your total revenue equals your total costs. Below it, you are losing money. Above it, you are profitable. It is the minimum viable threshold for any business venture.
Formula: Break-Even Point (units) = Fixed Costs ÷ (Selling Price per Unit − Variable Cost per Unit)
The difference between selling price and variable cost is called the contribution margin — the amount each sale contributes toward covering your fixed costs.
Fixed Costs vs Variable Costs
Understanding the difference is essential for accurate analysis.
Fixed Costs (Do Not Change with Sales Volume)
- Rent or mortgage payments
- Insurance premiums
- Salaries for permanent staff
- Software subscriptions
- Loan repayments
- Equipment leases
Variable Costs (Change with Each Unit Sold)
- Raw materials and components
- Packaging
- Shipping and delivery
- Sales commissions
- Payment processing fees
- Direct labor per unit
A Practical Example
Suppose you sell handmade candles:
- Fixed costs: $2,000/month (rent, insurance, website)
- Selling price: $25 per candle
- Variable cost: $8 per candle (wax, wick, jar, label, shipping)
Break-even point: $2,000 ÷ ($25 − $8) = 118 candles per month
You need to sell 118 candles just to cover costs. Candle 119 is where profit begins.
How to Use Break-Even Analysis
Before Launching a Product
Run the numbers before committing capital. If the break-even volume is unrealistically high, reconsider your pricing or cost structure.
When Setting Prices
Test different price points in your break-even formula. A small price increase can dramatically reduce the number of units needed.
When Considering Expansion
New equipment or a bigger space increases fixed costs. Calculate the new break-even point to see if current sales volume can sustain it.
When Evaluating Marketing Spend
If a campaign costs $5,000 and each sale contributes $17 toward fixed costs, you need approximately 295 additional sales to justify that spend.
Factors That Shift Your Break-Even Point
- Price increases lower the break-even volume
- Cost reductions in materials or shipping lower it further
- Adding fixed costs (new hire, bigger space) raises it
- Offering discounts raises it, sometimes dangerously
Common Mistakes
- Forgetting hidden costs — Returns, warranty claims, and customer support all add variable costs
- Using averages — If you sell multiple products at different margins, calculate break-even per product
- Ignoring time — Breaking even in 3 months is very different from breaking even in 3 years
Run Your Own Analysis
Use our Break-Even Calculator to instantly find your break-even point. Enter your fixed costs, variable costs, and selling price, and see exactly how many units you need to sell to start generating profit.