What's Your Business's Break-Even Point?

July 29, 2025

Are you a small business retailer wanting to add a new store? Do you own a therapy business and want to hire more therapists to help your patients? Or do you want to start your own IT company soon? Regardless of your industry, creating, growing, or changing your business will inevitably impact its income and expenses. Finding your break-even point in business is important, whether you're starting a new business or managing an established one. Many small business owners and managers don't fully understand how a business's break-even point can change over time.

What is a break-even point? It is a point where the business's revenue (income) equals its costs (expenses), and there is neither a loss nor a profit. In other words, it is figuring out how much the business needs to sell or earn to cover all of its expenses and costs.

We will take a deeper dive into how you can calculate your business's break-even point. However, before calculating the break-even point, it is essential to ensure you are working with solid numbers. This means working with accurate and complete financial information, which will help ensure the accuracy of the break-even point. If you are working with bad or questionable numbers, it will lead you to a bad analysis of your break-even point and can potentially lead you to making bad decisions. It is best to work with your accountant on this, as they can help you put together a lot of the information needed for the analysis.

In order to calculate the break-even point, you must first determine your sale price per unit, number of units to be sold, variable costs per unit, contribution margin, and fixed costs. Once you have put these numbers together, you can calculate the cost-volume-profit analysis, which will then help you calculate the business's break-even point.

What is a break-even point?

• It is a point where the business's revenue (income) is equal to the total variable and fixed costs (expenses), and there is neither a net operating loss nor a profit. In other words, it is figuring out how much the business needs to sell or earn to cover all of the expenses and costs.
• With this, you can calculate the following:
  • The amount of total revenue (sales) you need to break even
  • The number of units you have to sell to break even (assuming sales price remains the same)

What are variable costs?

• These are costs that vary in total but stay the same per unit. The total varies based on sales volume. For example, if the cost of a good sold is $5 per unit and the business sells 10 units, the total variable cost is $50 — but if it sells only 5 units, the total variable cost is $25.
• Here are common examples of variable costs:
  • Cost of goods sold
  • Shipping cost
  • Sales commission
  • Merchant fees
  • Any other costs directly traced to a sale of each unit

What are fixed costs?

• These are costs that stay the same in total but vary per unit. For example, if office rent costs $1,000 per month, that rent is fixed — so if in January the business sells 100 units, the fixed cost per unit is $10 ($1,000/100 units), but if in February it only sells 50 units, the fixed cost per unit becomes $20 ($1,000/50 units), while the total fixed cost remains $1,000.
• Here are common examples of fixed costs:
  • Employee salaries
  • Rent
  • Insurance
  • Other costs not directly traced to each unit

What is contribution margin?

• It is the revenue (sales) less the variable costs, in total or per unit.

Why it matters: Break-even analysis can help you make important business decisions such as pricing, volume, managing costs, and strategic planning.

• Pricing — figuring out how much you should sell your product or service for
• Volume — how many products, clients, or billable hours do you have to sell
• Managing costs — what are the business's variable, fixed, and mixed costs that affect profits
• Strategic planning — if you want to target a certain profit amount, what price or volume do you need to achieve that

Here are some common examples of when to use and calculate a break-even point for your business:

1. Adding a new store or location
2. Launching a new product or service
3. If you plan to start a new business
4. If you are an existing business and the cost structures have changed significantly since the business started

The formulas

Here is the formula to calculate the break-even points for the number of units to sell and total revenue (sales):

Break-even Units = Fixed Cost ÷ Contribution Margin per Unit

Alternative: Fixed Cost ÷ (Sales Price per Unit − Variable Cost per Unit)

Break-even Revenue (Sales) = Fixed Cost ÷ Contribution Margin %

Alternative: Fixed Costs ÷ (Sales Price per Unit ÷ (Sales Price per Unit − Variable Cost per Unit))

Assumptions and limitations to keep in mind:

• Because you are working with hypothetical scenarios — even with actual figures — the results are estimates, and actual results may differ.
• It assumes prices are constant, so volume discounts aren't factored in.
• It assumes costs are accurately divided into variable and fixed costs.
• If you sell multiple products or services, it assumes the sales mix is constant.

We have attached an Excel file for you to plug in the case example information below and use for your own business. There may also be software available to help you calculate the break-even analysis.

XLS

Example of Break-even Analysis Spreadsheet Download XLSX • 22KB

Case example

The t-shirt store

To keep this simple, let's say you own a retail store that sells only t-shirts. It has 1 store location and sells only 1 type of t-shirt. Using the information below, you can prepare a break-even analysis to help answer: "How many t-shirts would it need to sell to break even?" and "How much total revenue would it need to break even?"

Sales price & volume

1. Price per t-shirt — $80.00
2. # of t-shirts to be sold — 10,000

Variable costs per t-shirt

1. Cost of one t-shirt — $25.00
2. Sales commission — 5.00% of total revenue
3. Merchant fees — 2.00% of total revenue
4. Shipping cost — $3.00

Fixed costs to run the store for one year

1. Facilities (rent/utilities/repairs) — $36,000
2. Payroll — $150,000
3. Insurance — $2,500
4. Professional fees — $18,000
5. Marketing and advertising — $24,000
6. Supplies and equipment — $8,000
7. Other general admin — $5,000

Excluded for simplicity

• Depreciation and amortization
• Other income and expenses
• Taxes

Steps & results

1. Calculate total revenue (sales price per unit × # of units) Example = $800,000
2. Calculate total variable costs (variable cost per unit × # of units; for % costs, multiply rate × total revenue) Example = $336,000
3. Calculate total contribution margin (total revenue − total variable costs) Example = $464,000
4. Calculate total contribution margin % (total contribution margin ÷ total revenue) Example = 58%
5. Calculate contribution margin per unit (total contribution margin ÷ # of units) Example = $46.40
6. Calculate total fixed costs (sum of all fixed costs) Example = $243,500
7. Calculate net operating income or loss (total contribution margin − total fixed costs) Example = $220,500
8. How many t-shirts would it need to sell to break even? Example = 5,248 t-shirts
9. How much total revenue would it need to break even? Example = $419,828

Here is a chart illustrating the break-even point using the example above. The break-even point is where total revenue intersects total costs.

There are plenty of times when juggling a hundred things — running your business, or planning to start one — that the finances and important questions like "how much do I have to sell to start making a profit?" can sometimes get overlooked. Taking the time to make it a process to plan, calculate, estimate, and repeat as the business grows, calculating the break-even point can help maintain a healthy business and healthy profit.

Break-even analysis is a planning tool, not a guarantee — pair it with your accountant's review of your actual numbers before making major business decisions.