What is a Break-Even Point?
The break-even point is where your total revenue equals your total costs — meaning you make neither a profit nor a loss. Every unit sold beyond the break-even point generates pure profit.
The Formula
Break-Even Units = Fixed Costs ÷ (Selling Price − Variable Cost per Unit)
Break-Even Revenue = Break-Even Units × Selling Price
Fixed vs Variable Costs
Fixed costs stay the same regardless of how much you sell — rent, salaries, insurance, software subscriptions.
Variable costs change with each unit produced or sold — raw materials, packaging, shipping, commissions.
Frequently Asked Questions
Why is break-even analysis important?
It tells you the minimum performance your business needs to survive. Before launching a product or business, knowing your break-even point helps you set realistic sales targets and pricing strategies.
What is contribution margin?
Contribution margin is the selling price minus the variable cost per unit. It's the amount each unit "contributes" toward covering fixed costs and generating profit.
How can I lower my break-even point?
You can lower it by reducing fixed costs (negotiate rent, cut subscriptions), reducing variable costs (better suppliers, bulk buying), or increasing your selling price.