Your break-even point is the sales level where revenue equals total costs, so you make neither a profit nor a loss. Knowing it tells you how much you must sell before the business starts paying you.
Updated 25 October 2026.
The break-even formula
The part in brackets is the contribution margin: the amount each sale contributes toward fixed costs. Fixed costs are bills that stay the same each month, such as rent, software and insurance. Variable costs rise with each sale, such as materials, shipping and card fees.
Worked example
- Fixed costs: $3,000 per month.
- Price: $25 per unit. Variable cost: $10 per unit.
- Contribution margin: $25 – $10 = $15 per unit.
- Break-even units: $3,000 / $15 = 200 units per month.
- Break-even revenue: 200 x $25 = $5,000 per month. You can also divide fixed costs by the contribution margin ratio: $3,000 / 60% = $5,000.
Add a profit target
To earn $1,500 a month: ($3,000 + $1,500) / $15 = 300 units.
Margin of safety
If you currently sell 260 units, you are 60 units above break-even. The margin of safety is 60 / 260 = 23.1%, meaning sales can fall by about that much before you start losing money.
How to improve your break-even
- Raise the price, which increases the contribution margin. Check markup and margin before you change it.
- Lower variable costs with better suppliers or less waste.
- Cut or renegotiate fixed costs.
Fixed and variable costs: sort your own list
- Fixed: rent, insurance, software subscriptions, loan payments and salaried pay.
- Variable: materials, packaging, shipping, payment processing fees and sales commissions.
- Mixed: utilities and phone plans. Split them into a fixed base and a usage part.
Not sure what counts as a business cost? The IRS guide to business expense resources lists the main categories.
Break-even for a service business
A cleaner charges $50 per job. Each job costs $18 in supplies, fuel and helper time, and fixed costs are $2,400 a month. The contribution margin is $50 – $18 = $32, so break-even is $2,400 / $32 = 75 jobs a month, or about 17 a week. Break-even revenue is 75 x $50 = $3,750.
Break-even in Excel
- Fixed costs in B1, price in B2 and variable cost per unit in B3.
- Contribution margin in B4:
=B2-B3. - Break-even units in B5:
=B1/B4. Round up, because you cannot sell part of a unit. - Break-even revenue in B6:
=B5*B2. - Target profit in B7 and units needed in B8:
=(B1+B7)/B4.
Keep your monthly fixed and variable costs in one place with the small business bookkeeping spreadsheet.
Use break-even to test a price change
In the main example, raising the price from $25 to $28 lifts the contribution margin from $15 to $18. Break-even falls from 200 units to $3,000 / $18 = 167 units (rounded up), about 33 fewer sales each month. Before you raise a price, check that you will not lose more customers than that. See markup and margin for how price relates to profit.
Limits of the formula
- It assumes price and variable cost stay constant as you sell more.
- With several products, use the average contribution margin weighted by how many of each you sell.
- It ignores seasonality, so check your slowest months, not only the average.
Use the calculator
Put your numbers in the break-even calculator for small business to see units, revenue and margin of safety. Other tools are on the free tools page.
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Frequently asked questions
What is the break-even point formula?
Divide your fixed costs by the contribution margin, which is the price per unit minus the variable cost per unit. The result is the number of units you must sell to cover all costs.
What counts as a fixed cost?
Costs that do not change with sales volume in the short term, such as rent, insurance, software subscriptions and salaried pay.
Does break-even include my own pay?
It should. Include a fair owner pay in fixed costs, or the break-even point will look lower than it really is.