What is Break-Even Point?

The break-even point is the sales volume at which total revenue exactly covers total costs, producing neither profit nor loss; every unit sold beyond it generates profit.

Break-even analysis answers the most basic question in business: how many units do I need to sell to cover my costs? It separates costs into fixed (rent, salaries, software) and variable (per-unit production or fulfilment) and finds the volume at which revenue equals their sum.

Once below break-even, every additional sale reduces the loss. Once above it, every additional sale becomes pure contribution to profit (minus any incremental variable costs). The lower your break-even, the lower your business risk.

Two levers move it: reduce fixed costs or increase the per-unit contribution margin (price minus variable cost). Cutting fixed costs usually lowers break-even faster than raising prices, because price hikes risk reducing demand.

Formula

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

Example

A coffee shop with CHF 8,000 monthly fixed costs, a CHF 1.20 variable cost per coffee and a CHF 4.50 selling price needs to sell 2,424 coffees per month to break even.

↗ Use the calculator

Break-Even Calculator

Find the exact unit volume and revenue you need to cover your fixed and variable costs.

Open calculator →

Related terms

Fixed Costs

Fixed costs are business expenses that do not change with the level of output or sales in the short term — they must be paid whether you sell zero units or thousands.

Variable Costs

Variable costs are business expenses that scale directly with output or sales — every additional unit produced or delivered adds an incremental cost.

EBITDA

EBITDA stands for earnings before interest, taxes, depreciation and amortization — a measure of a company's core operating profitability that removes financing and accounting effects.

Dividend

A dividend is a cash payment a company makes to its shareholders out of profits, typically distributed quarterly, semi-annually or annually in proportion to shares held.

Frequently asked questions

Should I include my own salary in fixed costs?+

Yes if you work full time. Treating your time as free distorts the calculation and leads to under-pricing.

What is contribution margin?+

Price minus variable cost per unit. It's the cash each sale contributes toward fixed costs and (above break-even) to profit.

How does break-even relate to margin of safety?+

Margin of safety = (Actual sales − Break-even sales) / Actual sales. Above 30% is considered healthy.