How to work out your break-even point
Every sale you make is profitable, and yet the bank balance keeps falling. It is a genuinely confusing position to be in, and the explanation is almost always the same: nobody has worked out how many of those profitable sales are needed to cover the cost of simply being open. That figure is your break-even point, and it takes about ten minutes to find.
Split your costs in two
Break-even depends on sorting every cost into one of two buckets. The split is not always obvious, but it is the part that makes the rest work.
- Fixed costs stay the same whether you sell one unit or a thousand. Rent, insurance, software subscriptions, accounting fees, your own salary if you take one.
- Variable costs occur per sale. Materials, packaging, the wholesale price of stock, payment processing fees, per-order shipping.
Some costs sit awkwardly between the two. Electricity has a standing charge and a usage component. A contractor paid per job is variable; the same person on a retainer is fixed. When a cost is genuinely mixed, split it if you can and treat it as fixed if you cannot — that errs towards a higher break-even, which is the safer direction to be wrong in.
Contribution margin
Take your selling price and subtract the variable cost of one unit. What remains is the contribution — the amount each sale contributes towards covering your fixed costs.
A candle business sells at $32 a candle:
| Per candle | Amount |
|---|---|
| Selling price | $32.00 |
| Wax, wick and fragrance | − $8.40 |
| Jar and lid | − $3.10 |
| Box and packaging | − $1.90 |
| Payment processing (2.6%) | − $0.83 |
| Contribution per candle | $17.77 |
Every candle sold puts $17.77 towards the fixed costs. Until those are covered, none of it is profit.
The break-even calculation
Now the fixed costs. Studio rent $850, insurance $60, website and software $95, accountant $110 — $1,115 a month.
$1,115 ÷ $17.77 = 62.7, so 63 candles a month
Sixty-three candles covers the cost of existing. Candle 64 is the first one that earns anything, and from there each one adds $17.77 of profit.
In revenue terms that is 63 × $32 = $2,016 a month. Worth knowing, because revenue is the number most owners watch, and "I need $2,016 of sales before I earn a cent" is a far more useful sentence than "I need to sell more."
What the number is actually for
Its value is in testing decisions before you make them. Three examples using the same business.
A price rise
Raising the price to $35 lifts contribution to $20.69 after the slightly higher processing fee. Break-even drops to $1,115 ÷ $20.69 = 54 candles. A 9% price rise cut the break-even by 14%. Price changes move this number harder than almost anything else, which is why they deserve more attention than they usually get.
A bigger studio
A better space at $1,400 takes fixed costs to $1,665. Break-even becomes 94 candles — 31 more every month, forever, before the move pays for itself. Whether that is sensible depends on whether the space actually generates 31 extra sales.
A wholesale order
A shop wants 40 candles at $22. Contribution falls to $8.03 each after the discount but with no processing fee. That order contributes $321 — nearly a third of your fixed costs in one go, at a price that felt uncomfortably low. Break-even reframes discount decisions usefully: what matters is whether the contribution is positive and worth the capacity, not whether the price looks respectable.
When you sell more than one thing
Most businesses do not have a single product, which makes "units" a slippery concept. The workaround is to break even on revenue using your average margin.
If your overall gross margin is 45% and fixed costs are $1,115, then $1,115 ÷ 0.45 = $2,478 of monthly sales to break even. It is less precise than the per-unit version because the answer shifts with your product mix, but it is close enough to plan with — and far better than not knowing.
This is where the margin figure has to be the real one rather than the intended one, and where the difference between margin and markup stops being academic. Using markup here would give you a break-even figure that is too optimistic in exactly the way you cannot afford.
Getting your real numbers
The calculation is easy; the inputs are the work. You need honest fixed costs including the annual ones averaged monthly, and honest variable costs including the fees that are easy to forget.
Record your sales and expenses in the myFinnexa business calculator, categorise the expenses, and you can read your fixed costs off the category breakdown directly. Mark genuinely recurring costs as recurring and one-off purchases as one-time, so the monthly figure reflects what actually repeats.
Recalculate whenever a fixed cost changes or you adjust a price. It is a ten-minute job, and it is the difference between knowing your business works and hoping it does.
The short version
- Fixed costs do not move with sales. Variable costs do.
- Contribution = price − variable cost per unit.
- Break-even units = fixed costs ÷ contribution per unit.
- For mixed products, break-even revenue = fixed costs ÷ gross margin.
- Use it to test price changes and new costs before committing to them.