How to calculate your break-even point
The break-even formula, a worked example, and a free calculator: find how many sales a month you need to cover your costs, and what changes the number.
Your break-even point is how much you have to sell to cover your costs. The SBA defines it as “the point at which total cost and total revenue are equal.” Sell less and you lose money; sell more and you make a profit. Knowing it turns a vague goal like “get more sales” into a number you can plan around.
The formula
- Fixed costs stay the same however much you sell: rent, insurance, salaries, loan payments, software.
- Variable costs come with each sale: materials, packaging, shipping, card processing fees.
- Price is what the customer pays for one unit.
Price minus variable cost is your contribution margin: what each sale puts toward your fixed costs. To get the break-even point in dollars of sales instead of units, divide fixed costs by the margin as a share of the price:
Break-even calculator
Use monthly numbers. It starts with the coffee cart example below; nothing you type leaves this page.
Each sale puts $3.50 toward your fixed costs.
Worked example: a coffee cart
Made-up numbers for a cart that sells drinks at $5.00 each.
| Fixed costs | Per month |
|---|---|
| Cart loan payment | $900 |
| Commissary kitchen rent | $700 |
| Insurance | $150 |
| Permits (monthly share) | $100 |
| Phone and card reader software | $150 |
| Your own pay | $1,000 |
| Total fixed costs | $3,000 |
| Variable costs | Per drink |
|---|---|
| Coffee and milk | $0.92 |
| Cup, lid and sleeve | $0.30 |
| Card processing fee | $0.28 |
| Total per drink | $1.50 |
Each drink contributes $5.00 − $1.50 = $3.50. So $3,000 ÷ $3.50 = 857.1, which rounds up to 858 drinks a month. Open six days a week (about 26 days a month), that’s about 33 drinks a day. In sales, it’s $3,000 ÷ 0.70 = $4,286 a month.
What moves the number
| Change | Each drink covers | Drinks to break even |
|---|---|---|
| As above | $3.50 | 858 |
| Raise the price to $5.50 | $4.00 | 750 |
| Cut the cost per drink to $1.20 | $3.80 | 790 |
| Cut fixed costs to $2,600 | $3.50 | 743 |
| Add a 10% cushion (fixed costs $3,300) | $3.50 | 943 |
A higher price or a lower cost per sale means each sale covers more; lower fixed costs mean there’s less to cover. The SBA suggests adding about 10% to your costs for expenses you can’t predict, which is the last row.
Include your own pay
If you need the business to pay you, put that amount in fixed costs. Otherwise break-even only tells you when the business stops losing money, not when it supports you. In the example, $1,000 of the $3,000 is the owner’s pay.
Common mistakes
- Mixing time periods, like yearly insurance with monthly rent. Convert everything to one month first.
- Leaving out per-sale costs such as card fees, shipping or returns.
- Rounding down. You can’t sell part of a drink, so always round up.
- Treating break-even as the goal. It’s the floor: profit starts after it.
Sources
- U.S. Small Business Administration, “Break-even point”: www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs/break-even-point
- U.S. Small Business Administration, “Calculate your startup costs”: www.sba.gov/business-guide/plan-your-business/calculate-your-startup-costs
General information, not legal, tax or financial advice. Rules differ by state, county, city and industry, so check with your local officials or a professional before you act.