Break-Even Analysis Explained: Find Out Exactly When Your Business Starts Making Money
Every business has a magic number: the amount you must sell before you stop losing money. That number is your break-even point, and knowing it turns guesswork into planning.
What is the break-even point?
It's the sales level where total revenue equals total costs. Sell less β you lose money. Sell more β every additional sale is profit.
The formula (simpler than it looks)
The part in brackets is your contribution margin β the amount each sale contributes toward covering your fixed costs.
A complete worked example
Say you sell handmade candles for $25 each. Each candle costs $10 in materials (variable cost). Your studio rent, insurance, and software come to $3,000/month (fixed costs).
- Contribution margin = $25 β $10 = $15
- Break-even = $3,000 Γ· $15 = 200 candles per month
- Break-even revenue = 200 Γ $25 = $5,000/month
Sell 201 candles and you're profitable. Sell 300 and you pocket $1,500 in profit.
Three levers to lower your break-even
- Raise prices β the fastest lever. Even $2 more per candle cuts ~27 break-even units in our example.
- Reduce variable costs β cheaper materials or packaging without hurting quality.
- Cut fixed costs β renegotiate rent, drop unused subscriptions.
Limits to keep in mind
Break-even assumes costs stay constant and every unit sells at the same price. Real life is messier β treat it as a compass, not a crystal ball. Revisit it monthly as your costs evolve.