Break-Even Calculator: The Number Every Small Business Owner Needs to Know
Reviewed by Jerry Croteau, Founder & Editor
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Most small businesses fail not because they lack customers, but because they lack clarity about their numbers. The break-even point — the sales volume at which revenue exactly covers all costs — is the single most important number to understand before you price anything, hire anyone, or invest in growth.
Our computes this instantly from your cost inputs. This guide explains the concepts and how to use them for real business decisions.
Fixed costs vs variable costs
The break-even calculation requires separating two types of costs:
Fixed costs do not change with sales volume. Whether you sell 10 units or 10,000, these costs remain constant: rent, salaries, insurance, software subscriptions, loan payments, depreciation.
Variable costs change proportionally with sales volume. For each additional unit you sell, these costs increase: cost of goods sold (materials, direct labor), packaging, shipping, payment processing fees, sales commissions.
Contribution margin
The contribution margin is the amount each unit of sale contributes toward covering fixed costs after variable costs are paid.
Contribution Margin per Unit = Selling Price - Variable Cost per Unit
Contribution Margin % = Contribution Margin / Selling Price x 100
Example: a coffee shop
Selling price per coffee: $5.00
Variable cost per coffee (beans, cup, lid, milk, labor): $1.80
Contribution margin = $5.00 - $1.80 = $3.20 per coffee
Contribution margin % = $3.20 / $5.00 = 64%
Every coffee sold contributes $3.20 toward the shop's fixed costs. Once fixed costs are covered, that $3.20 becomes profit.
Break-even in units
Break-Even Units = Fixed Costs / Contribution Margin per Unit
Example: coffee shop break-even
Monthly fixed costs: rent $3,000 + staff salaries $8,000 + utilities $400 + insurance $200 + POS software $100 = $11,700
Break-even = $11,700 / $3.20 = 3,656 coffees per month
That is about 122 coffees per day (30-day month) before the shop makes a single dollar of profit.
Break-even in revenue dollars
Break-Even Revenue = Fixed Costs / Contribution Margin %
Using the same coffee shop:
Break-even revenue = $11,700 / 0.64 = $18,281 per month
This is useful when you sell multiple products at different margins — you work with revenue rather than unit count.
Sensitivity analysis: how price and cost changes affect break-even
| Scenario | Change | New break-even (units) | Change |
|---|---|---|---|
| Base case | — | 3,656 | — |
| Raise price $0.50 | +10% | 3,250 | -11% |
| Lower price $0.50 | -10% | 4,222 | +15% |
| Add $1,000/mo staff | +8.5% fixed cost | 3,969 | +8.5% |
| Cut variable cost $0.30 | -17% variable | 3,391 | -7.2% |
This table illustrates a crucial asymmetry: price cuts hurt break-even more than equivalent price increases help it, because the contribution margin is the denominator. Small pricing decisions have outsized impact.
Adding a profit target
Break-even tells you when you stop losing money. To reach a profit target, add it to fixed costs:
Units for target profit = (Fixed Costs + Target Profit) / Contribution Margin
Example: $5,000/month profit
Units = ($11,700 + $5,000) / $3.20 = $16,700 / $3.20 = 5,219 coffees/month
That is 174 coffees per day — a meaningful target to work toward.
Multi-product break-even
When you sell multiple products with different margins, use the weighted average contribution margin:
- Calculate contribution margin % for each product
- Weight each by its share of total revenue
- Sum the weighted percentages
- Divide fixed costs by the weighted average
If 60% of revenue comes from $5 coffees (64% margin) and 40% from $12 sandwiches (45% margin):
Weighted CM = (0.60 x 0.64) + (0.40 x 0.45) = 0.384 + 0.180 = 56.4%
Break-even revenue = $11,700 / 0.564 = $20,745
What break-even does not tell you
Break-even analysis assumes linear cost and revenue relationships — that variable costs stay constant per unit and that price does not change with volume. In practice:
- Variable costs often decrease at scale (bulk purchasing, efficiency)
- Prices may need to drop to grow volume
- Fixed costs are step-functions (rent stays constant until you need more space, then jumps)
Break-even is a planning tool, not a forecast. Use it to evaluate decisions and understand tradeoffs, then validate with real-world data as the business operates.
Run break-even for any cost and pricing structure with our , and pair it with the to model the full picture of your unit economics.
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