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BlogHow much do you need to sell before your business stops losing money? It's the most practical question a founder can ask, and far too many launch without a precise answer. The break-even point gives you that number in seconds from three figures you already know.
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What the break-even point actually means
Break-even is the sales level at which total revenue exactly equals total costs. Profit is zero: you're not losing money, and you're not making any either. Below it you're burning cash; above it, every sale contributes to profit. It can be expressed in units, in dollars of revenue, or as the month of the year you cross the line.
The formula
Three ingredients:
- Fixed costs — rent, insurance, software subscriptions, accounting, salaried staff, equipment depreciation. They hit whether you sell zero units or a thousand.
- Selling price per unit — what the customer actually pays, excluding sales tax.
- Variable cost per unit — materials, packaging, shipping, payment processing, per-order fulfillment.
Price minus variable cost gives the contribution margin: the amount each sale contributes toward fixed costs. So:
Break-even units = Fixed costs ÷ Contribution margin per unit
Multiply the result by price and you get break-even revenue in dollars.
A worked example: a candle business
Maya runs a candle studio in Brooklyn. Her annual fixed costs are $12,000: $600/month studio rent, $100/month for insurance and Shopify, plus $3,600 in advertising. Each candle sells for $50 and costs her $20 in wax, glassware, labels and shipping.
- Contribution margin: $50 − $20 = $30 per candle, a 60% margin rate.
- Break-even: $12,000 ÷ $30 = 400 candles per year.
- Break-even revenue: 400 × $50 = $20,000.
That's about 34 candles a month. Candle number 401 puts $30 straight into profit. Maya now knows whether that volume is realistic given her production capacity and her audience size.
Three mistakes that wreck the math
1. Including sales tax in the price. Sales tax you collect belongs to the state. Building it into your price inflates your apparent margin and hides a loss-making product.
2. Ignoring invisible variable costs. Stripe or Square fees (around 2.9% + $0.30), Etsy or Amazon commission (up to 15%), free shipping you absorb, and returns all eat into margin on every single order. Leave them out and your break-even estimate will be badly optimistic.
3. Not paying yourself. If your own compensation isn't in fixed costs, break-even is artificially low. Add the salary you actually want to earn — that's the only way to know whether the business is viable for you, not just for the entity.
How to lower your break-even point
Three levers, in order of power. Raise price: it improves margin on every unit at once. Moving from $50 to $55 drops break-even from 400 to 343 candles with zero operational change. Cut variable cost through supplier negotiation, bulk buying, lighter packaging or a cheaper carrier. Cut fixed costs: smaller space, cancel unused SaaS, contractors instead of a salaried hire.
How often should you recalculate?
At least annually, and always after something structural changes: a rent increase, a new hire, a materials price jump, a permanent discount code, or launching on a marketplace that takes a commission. Break-even isn't a one-time number — it's a dashboard metric.
Services and SaaS work the same way
Swap the unit for a billable day, an hour, or a monthly subscription. A consultant charging $1,200/day with $200 of direct project costs and $48,000 in annual overhead breaks even at 48 billable days a year — four a month. Run the numbers before you set your rate, not after.
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Disclaimer: informational content only. For a formal business plan or loan application, have your figures reviewed by a CPA.
