How to calculate your break-even point, with examples

To find your break-even point, divide what the business costs each month whether you sell or not (your fixed costs) by what each sale leaves after its own costs (the price minus the cost per sale). The answer is how many sales a month you need before the business stops losing money. A shop with $600 a month in fixed costs and $20 left on each sale needs 30 sales a month before it earns a dollar. The rest of this guide is about getting those two inputs right, adding your own pay, and deciding whether the number is within reach.

The break-even formula

The SBA’s guide to break-even analysis gives the standard formula:

Fixed costs ÷ (price − cost per sale) = break-even point in sales

The part in brackets has a name: the contribution margin. It’s what one sale contributes toward the fixed costs once its own costs are paid. Every sale up to the break-even point goes to covering the fixed costs; every sale after it is profit, before tax.

Three things keep the answer honest:

• Work it per month. Fixed costs arrive as monthly bills, and a monthly number of sales is one you can check against your books and your calendar.
• Round up. 17.2 sales means 18: nobody buys a fifth of a candle.
• Work it per product. The formula assumes one product or service at one price. If you sell several, work each one, or use the dollar version further down with the average margin from your books.

Sort your costs: fixed, and per sale

Most mistakes in the sum come from a cost put in the wrong list, or left out of both.

Fixed costs come round every month whether you sell one thing or a hundred: the store or website plan, software subscriptions, insurance, a storage unit or studio, a phone line used for the business, a set monthly ad budget. Bills that arrive yearly or quarterly go in as a monthly share: a $420 yearly insurance premium is $35 a month.

Costs per sale come with each sale and only then: materials, packaging, postage you pay, a contractor’s time on the job, and the card or marketplace fee. The fee is the one most often left out. Card payments usually cost around 3% of the sale plus a small fixed fee, and marketplaces often take more.

Some costs are both. A phone plan you also use personally, or a car you drive to jobs, has a fixed part and a part that grows with the work. The SBA suggests splitting these into their fixed and variable parts where you can, and adding a little extra, around 10%, for the expenses nobody remembers until the bill arrives.

Cost	Which list	How to count it
Store or website plan	Fixed	The monthly price, or the yearly price ÷ 12
Insurance	Fixed	The premium ÷ the months it covers
A set monthly ad budget	Fixed	The amount you’ve committed to
Materials and packaging	Per sale	What goes into one unit
Postage you pay	Per sale	The label for one order
Card or marketplace fees	Per sale	The percentage of the price plus any fixed fee
Phone, car, home internet	Split	The business share, fixed or per job

If you aren’t sure what the fixed costs add up to, three months of bank and card statements will tell you. A bookkeeping app turns that into a monthly report, and there are free ones in the Toolbox. The costs part of the Idea Inspection asks the same questions as a checklist, if you’d rather work through them that way.

A product example

An example to show the sum: hand-poured candles sold from your own online store at $30 each, shipping included, paid by card at 2.9% + 30¢.

What one sale costs	Cost
Wax, wick, jar and fragrance oil	$6.80
Box, padding and label	$1.60
Postage	$5.43
Card fee (2.9% of $30, plus 30¢)	$1.17
Total per sale	$15.00

Each candle leaves $30 − $15 = $15 toward the fixed costs.

What the business costs each month	Cost
Online store plan	$29
Product liability insurance ($420 a year)	$35
Domain and email	$6
Design software	$15
Ads, a set monthly budget	$100
Storage unit for stock and supplies	$85
Total fixed	$270

Break-even: $270 ÷ $15 = 18 candles a month. Add the SBA’s 10% for forgotten costs and it’s $297 ÷ $15 = 19.8, so plan on 20.

Notice who isn’t in the sum: the owner. Eighteen candles a month stops the business losing money. It doesn’t pay anyone for making them, and that comes two sections down.

A service example

A second example: a weekend mobile bike-repair service charging $75 for a tune-up, paid by card in person at 2.6% + 15¢. Parts are billed to the customer at cost, so they’re left out of both sides of the sum.

• Per job: $5.90 in consumables (lube, degreaser, rags, cable ends), $4.00 in fuel and a $2.10 card fee, $12.00 in all. Each job leaves $75 − $12 = $63.
• Fixed, each month: $45 for liability insurance, $30 for the business share of the phone, $20 for the website and booking page, $40 set aside to replace tools, $60 for flyers and local ads, and $120 for a storage unit for the stand and parts: $315 in all.

Break-even: $315 ÷ $63 = 5 jobs a month.

That looks easy, and it’s the usual trap with a service. Most of the price is pay for your time, so the plain break-even comes out low and says almost nothing about whether the business is worth running. The number that matters is the next one.

Break-even in dollars, and with your pay counted

In dollars

To see break-even as a sales figure rather than a count, divide the fixed costs by the contribution margin ratio: what each sale leaves, as a share of its price. The candle leaves $15 of a $30 price, a ratio of 50%, so $270 ÷ 0.50 = $540 of sales a month, which is the same 18 candles. The dollar version earns its keep when you sell several products at different prices: take the average ratio from last month’s sales and costs, and you have one monthly sales target instead of a sum per product.

With your pay counted

OpenStax’s managerial accounting textbook shows the standard way to build a target profit into break-even: add it to the fixed costs and work the sum again. If the business has to pay you, your pay is that target.

Example	Fixed costs	Each sale leaves	Break-even	Pay wanted a month	Break-even with pay
Candles	$270	$15	18 candles	$500	52 candles ($770 ÷ $15 = 51.3)
Bike tune-ups	$315	$63	5 jobs	$1,200	25 jobs ($1,515 ÷ $63 = 24.05)

Count that pay before tax. Self-employed people with net earnings of $400 or more in a year pay self-employment tax of 15.3% for Social Security and Medicare, on top of income tax. If you need $1,200 a month to spend, the business has to leave more than $1,200, and an accountant can tell you how much of each payment to set aside.

Check the number against demand and your hours

A break-even number only means something set against two others.

Demand. How many have you actually sold, or had pre-ordered, in a month? If the candles sold 8 last month and break-even with pay is 52, the gap is 44 candles a month, and closing that gap is the job. If you haven’t sold any yet, the number tells you what your tests need to show before you spend more; the Validation guides cover how to run them.

Hours. Multiply the sales by the time each takes, counting the work around it. At about 20 minutes a candle, made in batches and packed one at a time, 52 candles is roughly 17 hours a month, about 4 a week, plus the photos, messages, ads and books. The bike service is a different animal: at 2.5 hours a job with travel and messages, 25 jobs is 62.5 hours a month, about 14 a week, which is most of every weekend for someone with a day job. If the hours don’t fit, finding time around a day job is one answer; changing the numbers is usually the better one.

Three ways to bring it down

The formula has three parts, so there are three levers: the fixed costs, the price and the cost per sale. Here is what each does to the candle example.

Change	Each sale leaves	Fixed costs	Break-even	With $500 pay
As it stands	$15.00	$270	18	52
Cut fixed costs by $60	$15.00	$210	14	48
Raise the price to $34	$18.88	$270	15	41
Cut the cost per sale by $2	$17.00	$270	16	46

1. Cut the fixed costs. Every $15 off the monthly bills is one candle fewer a month. Drop the subscriptions the first customers wouldn’t notice, and go carefully with the ad budget: cut it, and the sales it brings may go with it.
2. Raise the price. A price rise goes straight to what each sale leaves, less the card fee on the extra (12¢ on $4 here), which is why it moves the number most once your pay is counted. It only works if buyers accept the new price; how to price a product covers how to find out before you change it.
3. Cut the cost per sale. Jars bought by the case, a smaller box or a cheaper postage option each come off every sale. Small savings here add up because they repeat.

Tip: work the sum again whenever a cost changes: a new subscription, a postage increase, a fee change on your platform. Break-even moves with every one of them, and no bill arrives with the new figure on it.

If none of the three brings the number within reach of your demand and your hours, the business won’t run as it stands, and it’s far cheaper to learn that before you buy the stock than after. If you’re already selling and the money still isn’t there, why your business isn’t making money works through the checks in order, and the Money section covers pricing, costs and cash flow in more depth.