How to Calculate Your Break-Even Point
Break-even analysis answers a simple but critical question: how many units do you need to sell before you stop losing money?
Break-even units = fixed costs ÷ (price per unit − variable cost per unit). Below this many units sold, you're operating at a loss; above it, each unit is profit.
Fixed vs variable costs — get this split right first
Fixed costs stay the same regardless of sales volume (rent, salaries, software subscriptions). Variable costs scale with each unit sold (materials, packaging, payment processing fees). An inaccurate split here throws off the entire calculation.
Worked example
$10,000 monthly fixed costs, $50 price per unit, $30 variable cost per unit: contribution margin = $20/unit. Break-even = 10,000 ÷ 20 = 500 units, or $25,000 in revenue (500 × $50).
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Frequently Asked Questions
What if variable cost exceeds price?↓
Then you lose money on every unit sold and can never break even at any volume — you'd need to raise price or cut variable cost first.
Should one-time costs count as fixed costs?↓
Use your typical recurring monthly costs for fixed costs; for one-time costs like equipment, consider spreading them across a set period or adding them to your break-even target directly.