How to Calculate Your Break-Even Point (Formula & Worked Example)

By Ricardo Lau Cooper, Senior Financial Data Analyst · LinkedIn

Your break-even point is the number of sales you need to make before your business stops losing money and starts making it. It's the first number every founder, freelancer, and small business owner should know — and it takes five minutes to calculate. This guide walks through the formula, a full worked example, how to find your break-even point in sales dollars, and the mistakes that make the number meaningless.

What is the break-even point?

Break-even is the sales level where total revenue exactly covers total costs — no profit, no loss. Every sale before that point loses money; every sale after it earns profit. To find it, you only need three numbers: your fixed costs (rent, salaries, software — costs that don't change with sales), your price per unit, and your variable cost per unit (materials, packaging, commissions — costs that grow with each sale).

The break-even formula

Break-even (units) = Fixed costs ÷ (Price per unit − Variable cost per unit)

Step 1 — Find your contribution margin

The denominator — price minus variable cost — is your contribution margin: the amount each sale contributes toward covering fixed costs. If you sell a product for $40 and it costs you $15 to make and ship, each unit contributes $25. That $25 is the fuel that pays down your fixed costs; once they're covered, it becomes pure profit.

Step 2 — A worked example

You run an online store selling a $40 candle. Each one costs $15 in wax, jar, label, packaging, and shipping. Your monthly fixed costs are:

• Studio rent: $800
• Salaries (you + a part-time helper): $2,800
• Software, website, and tools: $150
• Insurance and admin: $250
• Marketing budget: $1,000

• Total fixed costs: $800 + $2,800 + $150 + $250 + $1,000 = $5,000 per month
• Contribution margin: $40 − $15 = $25 per candle
• Break-even in units: $5,000 ÷ $25 = 200 candles per month
• Break-even in sales dollars: 200 × $40 = $8,000 in monthly revenue

Sell 199 candles and you lose money. Sell 200 and you've covered everything. From candle 201 onward, each sale puts $25 of profit in your pocket.

Step 3 — Go further: break-even with a profit target

Units needed = (Fixed costs + Target profit) ÷ Contribution margin

Breaking even keeps the lights on, but you started a business to make money. To find the sales you need for a specific profit, add the target to your fixed costs. Want $2,000 a month in profit? ($5,000 + $2,000) ÷ $25 = 280 candles. That one formula turns a vague goal — 'grow revenue' — into a concrete weekly target of about 70 candles.

How to use your break-even number

• Pricing decisions: if break-even needs sales you can't realistically hit, raise the price or cut variable costs.
• Cost control: every dollar cut from fixed costs lowers the sales you need to survive.
• New hires and big purchases: add the new fixed cost and re-calculate before you commit.
• Sales targets: divide monthly break-even by 4 to get a weekly goal your whole team understands.

Common mistakes in break-even analysis

• Leaving costs out of fixed costs — your own salary, annual subscriptions, and loan payments all count.
• Mixing fixed and variable costs — shipping grows with sales; rent doesn't. Misclassify them and the number lies.
• Using an average price when you sell several products — calculate break-even per product line instead.
• Calculating it once and never again — re-run it whenever prices, costs, or headcount change.
• Ignoring seasonality — a business that breaks even in December may lose money every summer month.