How break-even works
Your break-even point is where total revenue equals total costs: no profit, no loss[1]. Every unit you sell earns its contribution margin (price minus variable cost), and those margins pay off your fixed costs. Once fixed costs are covered, each extra sale is profit. That's the moment you're aiming for.
- Break-even units = fixed costs ÷ (price − variable cost per unit)[1].
- Break-even revenue = fixed costs ÷ contribution margin ratio, where the ratio = (price − variable cost) ÷ price[1].
- Units for a target profit = (fixed costs + target profit) ÷ contribution margin.
- Margin of safety = how far expected sales can fall before you lose money.
The SBA suggests working out fixed costs on a monthly basis, splitting semi-variable costs (like phone or power) into their fixed and variable parts, and adding a cushion of around 10% for expenses you can't predict[1]. If you sell several products, run the numbers per product or use an average price and variable cost weighted by your sales mix.
Worked examples
| Business | Fixed / month | Price | Variable cost | Margin / unit | Margin ratio | Break-even units | Break-even revenue |
|---|---|---|---|---|---|---|---|
| Coffee cart | $4,000 | $5.00 | $1.50 | $3.50 | 70.0% | 1,143 | $5,714 |
| Handmade candles (online) | $1,500 | $28.00 | $11.00 | $17.00 | 60.7% | 89 | $2,471 |
| Bakery | $12,000 | $4.00 | $1.40 | $2.60 | 65.0% | 4,616 | $18,462 |
| Online course | $800 | $99.00 | $8.00 | $91.00 | 91.9% | 9 | $870 |
| Cleaning service (per visit) | $3,500 | $150.00 | $70.00 | $80.00 | 53.3% | 44 | $6,562 |
Payment processing is a variable cost that's easy to overlook. A 2.9% + 30¢ card fee on a $28 candle is about $1.11 a sale; work yours out with the Stripe Fee Calculator or PayPal Fee Calculator. Software subscriptions are fixed costs; add them up with the Small-Business Software Stack Cost Calculator. Hiring? The Employee Cost Calculator gives the full monthly cost to put in fixed costs, and a loan payment belongs there too.
Frequently asked questions
What is the break-even formula?
Break-even units = fixed costs ÷ (selling price per unit − variable cost per unit). For break-even sales in dollars, divide fixed costs by the contribution margin ratio, which is (price − variable cost) ÷ price. These are the formulas SBA uses.
What counts as a fixed cost?
Costs that don't change with how much you sell in the period: rent, salaries, insurance, software subscriptions, loan payments, depreciation. Split mixed costs such as utilities into a fixed part and a variable part.
What counts as a variable cost?
Costs that rise with each unit sold: materials, packaging, shipping, card processing fees, sales commissions and per-unit labor.
What if my price is below my variable cost?
Then each sale loses money and you can never break even, however much you sell. Raise the price or cut the variable cost first.
How do I calculate break-even for a service business?
Treat one job, visit or billable hour as a unit. Use your price per job and the direct costs of doing it (supplies, travel, subcontractor pay) as the variable cost, and your monthly overhead as the fixed costs.
What is a good margin of safety?
There's no single rule. A higher margin of safety means sales can fall further before you make a loss. If expected sales are only a little above break-even, a slow month will put you in the red.
Sources
Break-even definitions and formulas from the U.S. Small Business Administration. We haven't tested these figures with a lender, insurer or payroll provider; rules and rates change, so confirm with the official source. See our methodology and editorial policy. General information only, not financial, tax or legal advice.
- [1] SBA: Calculate your startup costs (break-even point and formula): https://www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs (checked 17 Oct 2026)