How to calculate your business’s break-even point

At some point, most business owners likely stop and ask themselves: “When will I start seeing profit?” To figure this out, you’ll first want to calculate your break-even point. This is the moment when your business’s total revenue matches its total costs. In other words, it’s the point where you’re covering your expenses—but not making a profit (yet).

Calculating your break-even point can help you set smarter sales goals, price your products or services more effectively and make informed decisions about where to invest your time and resources. Keep reading to learn more.

What you’ll learn:

• Breaking even is when your earnings match your expenses—you’re covering costs but not yet turning a profit. 

• You can calculate it in two ways: by units, to see how many sales you need to cover your costs, or by revenue, to find out how much you need to earn overall.

• Key components you’ll need to calculate your break-even point include fixed costs, variable costs, selling price (or revenue per unit) and contribution margin.

• Once you understand what it takes for your business to break even, you can work toward becoming profitable.

If you’re a business owner ready to dive into the numbers, be sure you understand the core components that go into the break-even formulas first.

Each one plays a key role in helping you figure out when your business will start covering its costs:

• Fixed costs: These are your consistent business expenses—like rent or insurance—that don’t change based on how much you sell.

• Variable cost per unit: These are costs that go up or down with your sales volume. Think raw materials, shipping or hourly labor—anything that changes with each unit sold.

• Total variable costs: This is the sum of all variable costs for the total units sold. It accounts for how much you’re spending on variable expenses overall—not just per unit.

• Selling price per unit: This is the price at which each unit of product or service is sold.

• Contribution margin: This is the amount left over from each sale after you subtract variable costs. It’s what helps you cover fixed costs, maintain a positive cash flow and eventually turn a profit.

• Contribution margin ratio: This shows what percentage of each sale covers fixed costs and generates profit after variable costs are covered. It helps you understand profitability relative to sales revenue.

There are two main ways to calculate your break-even point: by units or by revenue. If you sell products, you’ll likely focus on how many units you need to sell. If you offer services or are more interested in total sales dollars as opposed to units sold, you may want to calculate your break-even point by revenue instead.

Both methods rely on the same basics: your fixed costs, variable costs and how much you earn from each sale. Once you know these numbers, you can quickly calculate when you’ll cover your costs—and when you’ll start making a profit.

Calculating your break-even point by units tells you the number of units you’ll need to sell in order to cover your costs. This method is especially helpful if you have a clear price per item and consistent variable costs.

​Start by figuring out your fixed costs, such as rent, insurance and salaries. Next, subtract your variable cost per unit from your selling price per unit. That figure is your contribution margin. Finally, divide your fixed costs by the contribution margin to find exactly how many units you need to sell to break even. 

The formula looks like this:

Fixed costs ∕ (Price per unit − Variable cost per unit) = Break-even point in units

If you’re more focused on total sales dollars than on units sold, you may get a fuller picture by calculating your break-even point in terms of revenue. This is especially useful for service-based businesses or those with multiple product lines.

Start by determining your fixed costs and total variable costs for the period. Next, calculate your total sales revenue. Subtract the total variable costs from your sales revenue to find your total contribution margin. This figure represents the amount remaining after covering variable costs. To find the contribution margin ratio, divide the contribution margin by total sales revenue. The result shows the percentage of each sales dollar that remains after variable costs are covered—money that can go toward paying fixed costs and generating profit.

The formula looks like this:

Fixed costs ∕ Contribution margin ratio = Break-even point (sales dollars)

Now that you know the key components, let’s look at how they come together in real-world calculations. These examples show you how to apply both break-even formulas—one based on units and the other on revenue.

Let’s say you run a small stationery business that sells custom notebooks. Your numbers might look like this:

• Fixed costs: $10,000 (monthly rent, salaries, utilities)

• Variable cost per unit: $5 (materials, packaging)

• Selling price per unit: $15

To find your break-even point in units, calculate your contribution margin by subtracting your variable cost per unit from your selling price per unit:

$15 − $5 = $10 (Contribution margin per unit)

Then, plug the numbers into the formula:

Fixed costs ∕ (Price per unit − Variable cost per unit) = Break-even point in units

$10,000 ∕ $10 = 1,000 (Break-even units)

That means you need to sell 1,000 notebooks just to cover your costs. Sell more than that and you’ll start making a profit.

Now, let’s say you run a consulting business where your revenue comes from client projects rather than from product sales. Your numbers might look like this:

• Fixed costs: $8,000 (office rent, software, salaries)

• Revenue per client: $2,000

• Variable cost per client: $800 (contractor fees, travel)

To find your break-even point in revenue, start by calculating your contribution margin—subtract your variable costs from your revenue:

$2,000 − $800 = $1,200 (Contribution margin per client)

Next, calculate the contribution margin ratio by dividing the contribution margin by your revenue:

$1,200 ∕ $2,000 = 0.6 (Contribution margin ratio)

Now, plug the numbers into the break-even point revenue formula:

Fixed costs ∕ Contribution margin ratio = Break-even point (sales dollars)

$8,000 ∕ 0.6 = $13,333.33 (Break-even revenue)

This means you’ll need to make $13,333.33 in revenue to break even. Anything beyond that is pure profit.

Your break-even point is when your total revenue equals your total costs—no profit, no loss. There are two common ways to calculate it: by units, which tells you how many products you need to sell to cover your costs, or by revenue, which shows how much money you need to bring in overall to cover your costs.

To calculate either, you must know your fixed costs, variable costs, selling price (or revenue per unit) and contribution margin. From there, you simply plug the numbers into the formula to find your break-even point. Once you know that, you can set realistic sales goals, price more strategically and make clearer business decisions.

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