What is the break-even point?
The break-even point is the sales volume where total revenue exactly covers total costs, so profit is zero. Every unit sold beyond it adds its contribution margin (price minus variable cost) to profit.
Break-even units = Fixed costs ÷ Contribution margin
Break-even sales ($) = Break-even units × Price
Example
A bakery has $10,000 of monthly fixed costs and sells cakes for $50 that cost $30 in ingredients and packaging. Each cake contributes $20, so it needs 10,000 ÷ 20 = 500 cakes ($25,000 in sales) per month to break even.
Ways to lower your break-even point
- Raise prices (even small increases lift contribution margin a lot).
- Cut variable costs through better supplier terms or less waste.
- Reduce or defer fixed costs such as rent and subscriptions.
FAQs
What counts as a fixed cost?
Costs that don't change with sales volume in the short term: rent, salaried wages, insurance, software subscriptions, loan payments.
What is a variable cost?
Costs that rise with each unit sold: raw materials, packaging, shipping, payment processing and sales commissions.
Why is the result rounded up?
You can't sell a fraction of a unit, so you need to reach the next whole unit to cover costs. The exact figure is also shown.