Before opening a shop, launching a product or taking a loan, one number tells you whether the idea can work: the break-even point. It is the level of sales where you neither make a profit nor a loss. Above it, you earn; below it, you lose money. This guide explains the formula with examples, using our free Profit Calculator.
The formula
Break-even units = fixed costs ÷ (price per unit − variable cost per unit)
The bottom part, price minus variable cost, is the contribution margin: what each sale contributes towards fixed costs.
Fixed vs variable costs
| Fixed costs (same each month) | Variable costs (per unit) |
|---|---|
| Rent | Raw materials or stock |
| Salaries | Packaging |
| Internet and utilities base charges | Delivery per order |
| Loan instalments | Payment fees |
Example: a juice shop
- Price per glass: Rs 250
- Variable cost per glass: Rs 110
- Fixed costs: Rs 210,000 a month
Contribution = 250 − 110 = Rs 140. Break-even = 210,000 ÷ 140 = 1,500 glasses a month, about 50 a day.
Example: home bakery
- Price per cake: Rs 3,000
- Variable cost: Rs 1,700
- Fixed costs (oven instalment, packaging stock, marketing): Rs 39,000
Break-even = 39,000 ÷ 1,300 = 30 cakes a month.
Break-even in sales value
Multiply break-even units by price: 1,500 × 250 = Rs 375,000 of sales a month for the juice shop.
Ways to lower your break-even point
- Raise prices, if customers accept it
- Cut variable costs by buying in bulk
- Reduce fixed costs, such as a smaller shop or shared space
- Sell more high-margin items
Is the target realistic?
Compare break-even with how much you can realistically sell. If you need 50 glasses a day but your street gets 300 passers-by, it may be achievable. If you need 500, rethink the plan.
Next steps
Once you know your break-even, set a profit target and work out the sales needed. For pricing individual products, use the Profit Margin Calculator. If you plan to borrow for equipment, check repayments with the Loan Calculator, and read planning profit for a small business.
Frequently asked questions
What is a break-even point?
The sales level where total revenue equals total costs, so profit is zero.
How do I calculate break-even units?
Divide fixed costs by the price minus variable cost per unit.
How can I reduce my break-even point?
Raise prices, cut variable costs or reduce fixed costs.