📊 Break-Even Analysis Calculator
Find Your Business Profitability Point
Small Business Consultant • 14 years experience • 500+ business plans analyzed
Fixed Costs (Monthly)
Per-Unit Economics
🎯 Expert Tips from Rachel Kim, MBA, CPA
- Fixed costs are the silent killer of startups: Client launched with $12k/month fixed costs (fancy office, 3 full-time staff). Needed 600 sales/month to break even. Took 18 months to hit that—burned $216k before profitability. I preach: Start with $3k-5k fixed costs max (home office, freelancers, minimal overhead). You can always scale up. Can't unscale down without layoffs and lease penalties.
- The "50% gross margin rule" for viability: If your contribution margin (price - variable cost) is below 50%, you're in trouble. Example: $40 price, $35 variable cost = $5 margin (12.5%). You need to sell MASSIVE volume to cover fixed costs. Good businesses: 50-70% margins. Great businesses: 70-85%. Software/SaaS: 85-95%. If you're under 40%, either raise prices or find cheaper suppliers—or quit.
- Break-even assumes you CAN sell that many units: Math says you need 800 units/month to break even. But can you actually SELL 800? Is the market big enough? Do you have distribution? I've seen dozens of businesses with perfect break-even math fail because TAM (Total Addressable Market) was too small. Before celebrating your break-even, ask: "Is this volume realistic in Month 6? Month 12?" If answer is no, rework the model.
- Contribution margin per unit is your real metric: Selling price $100, variable cost $70 = $30 contribution margin. Every unit sold throws $30 toward fixed costs. Once fixed costs are covered ($10k ÷ $30 = 334 units), that $30 becomes pure profit. This is why volume matters after break-even—your 335th unit costs you $70 to make but earns you $30 profit. Scale = profits.
⚠️ Common Mistakes to Avoid
- Miscategorizing semi-variable costs as fixed: Client listed "Payment processing fees" as $500/month fixed cost. Reality: It's 2.9% per transaction = variable cost. At 200 sales × $50 = $10k revenue × 2.9% = $290, NOT $500. Their break-even was wrong by 15%. Correctly categorize: If cost increases with sales, it's variable (even if it has a monthly component). Get this wrong and you'll miss break-even by months.
- Forgetting owner salary in fixed costs: Entrepreneur calculates break-even at $8k/month fixed costs, hits it, celebrates. Then realizes they haven't paid themselves in 8 months—living on credit cards. You MUST include a realistic owner draw ($3k-5k/month minimum) in fixed costs. Otherwise you're calculating "business break-even" not "livable wage break-even." I learned this the hard way—broke even on paper while personally going $40k into debt.
- Using average variable cost instead of actual: Client said "my average COGS is $25/unit." But Product A costs $15, Product B costs $40. They sell 80% Product A, 20% Product B. Weighted average: (0.8 × $15) + (0.2 × $40) = $20, not $25. Using $25 made their break-even look worse than reality. Always use weighted averages if you have multiple products with different margins.
- Assuming linear scaling (it's not): Break-even shows 500 units/month needed. Founder thinks "I'll just sell 500!" But reality: Months 1-3 you sell 50 units. Months 4-6: 150 units. Months 7-9: 300 units. Takes 12+ months to hit 500. Meanwhile you're bleeding $5k-7k/month in losses. Break-even math is correct, but timeline assumption kills you. Always model: What if it takes 2-3x longer than expected? Do you have runway?
Understanding Break-Even Analysis
The Break-Even Formula
Break-Even Point (Units) = Fixed Costs ÷ (Price per Unit - Variable Cost per Unit)
Break-Even Point (Revenue) = Break-Even Units × Price per Unit
Example Calculation:
- Fixed Costs: $9,000/month
- Price per Unit: $50
- Variable Cost per Unit: $20
- Contribution Margin: $50 - $20 = $30
Break-Even Units = $9,000 ÷ $30 = 300 units/month
Break-Even Revenue = 300 × $50 = $15,000/month
Key Metrics Explained
1. Contribution Margin per Unit
Price - Variable Cost = Money available to cover fixed costs
Example: $50 - $20 = $30 per unit
2. Contribution Margin Ratio
(Contribution Margin ÷ Price) × 100
Example: ($30 ÷ $50) × 100 = 60%
Meaning: 60% of each sale goes toward fixed costs and profit
3. Margin of Safety
(Actual Sales - Break-Even Sales) ÷ Actual Sales × 100
Example: If you sell 450 units and need 300 to break even:
(450 - 300) ÷ 450 = 33.3% margin of safety
You can lose 33% of sales and still be profitable
Fixed vs Variable Costs - The Complete List
Fixed Costs (Stay constant regardless of sales):
- Rent/lease payments
- Full-time salaries (not commission-based)
- Insurance (general liability, property)
- Loan/debt payments
- Software subscriptions (monthly SaaS)
- Utilities (base charges)
- Depreciation/amortization
- Marketing (retainer-based, not performance)
Variable Costs (Increase with each unit sold):
- Raw materials/COGS
- Packaging materials
- Shipping costs
- Payment processing fees (%, not flat)
- Sales commissions
- Freelancer/contractor fees per project
- Customer acquisition cost (performance marketing)
- Merchant fees, marketplace fees
Semi-Variable/Mixed Costs (Have both fixed and variable components):
- Utilities (base fee + usage)
- Payment processing ($20/mo base + 2.9% per transaction)
- Part-time hourly wages (minimum hrs + overtime)
Break these into fixed and variable components for accuracy.
How to Use Break-Even Analysis
1. Pricing Decisions
Test different prices to see impact on break-even:
- At $40 price: Need 450 units
- At $50 price: Need 300 units
- At $60 price: Need 225 units
Higher price = lower volume needed (if demand stays strong)
2. Cost Reduction Targets
Reduce variable cost from $20 to $15 per unit:
- New contribution margin: $50 - $15 = $35
- New break-even: $9,000 ÷ $35 = 257 units (vs 300)
Saving $5/unit cuts break-even by 14%
3. Expansion Planning
Adding a new location with $5k more fixed costs:
- New total fixed: $14,000
- New break-even: $14,000 ÷ $30 = 467 units total
Need 167 units from new location to justify expansion
4. Profitability Forecasting
Once past break-even, every unit = contribution margin in profit:
- Break-even: 300 units = $0 profit
- 400 units: (400 - 300) ×$30 = $3,000 profit
- 500 units: (500 - 300) × $30 = $6,000 profit
Break-Even Timeline by Business Type
| Business Type | Typical Break-Even Timeline | Key Factors |
|---|---|---|
| E-commerce/Online | 6-12 months | Low fixed costs, scalable, CAC critical |
| Service Business | 3-6 months | Low startup costs, time = inventory |
| Restaurant/Cafe | 18-24 months | High fixed costs, low margins, slow ramp |
| SaaS/Software | 12-24 months | High dev costs, but high margins once launched |
| Retail Store | 12-18 months | Inventory + lease costs, location-dependent |
| Manufacturing | 18-36 months | High capex, economies of scale needed |