Profit and Pricing

How to Calculate Break-Even Point for a Small Business

Break-even tells you how much you need to sell before the business covers its costs. It is a planning floor, not a profit goal.

By QuickWebUtility Editorial · Published Aug 6, 2026

The quick answer

Break-even point is the sales level where total revenue equals total costs. Above break-even, each additional sale contributes toward profit. Below break-even, the business is still absorbing losses.

Definitions

Fixed costs are expenses that usually stay the same over the period. Variable cost changes with each sale. Contribution margin is selling price minus variable cost.

Formula

break_even_units = fixed_costs / (price_per_unit - variable_cost_per_unit)
break_even_revenue = break_even_units * price_per_unit

The Break-Even Calculator handles this formula and also shows contribution margin, expected profit, and margin of safety.

Example

Suppose a small business has 12,000 in monthly fixed costs. A product sells for 50 and costs 20 to deliver. Contribution per unit is 30. Break-even units are 400 and break-even revenue is 20,000.

Common mistakes

Common errors include leaving owner pay out of fixed costs, using average price when discounts are common, ignoring refunds, and assuming variable cost stays flat at higher volume. Break-even means survival; profit requires a buffer above it.

Actionable recommendations

Run conservative, expected, and optimistic scenarios. Use the Profit Margin Calculator to check margin and the Startup Runway Calculator to see how long cash lasts while sales ramp up.

FAQ

What if contribution margin is zero or negative?

Break-even is not possible at that price because each sale fails to cover its own variable cost.

Should taxes be included?

Include taxes that behave like a cost in the relevant fixed or variable category, but ask a qualified professional for tax treatment.