What Is Break-Even Analysis?
Break-even analysis tells you exactly how much you need to sell before your business starts making a profit. Below the break-even point, every sale reduces your losses. Above it, every sale is profit. It's the most fundamental planning tool for any business.
The Formula
Break-Even Units = Fixed Costs ÷ (Price Per Unit − Variable Cost Per Unit)
The denominator — price minus variable cost — is called the contribution margin. It's how much each sale contributes toward covering your fixed costs.
Price per coffee: $5.00
Variable cost per coffee: $1.50 (beans, cup, lid, milk)
Contribution margin: $5.00 − $1.50 = $3.50
Break-even: $8,000 ÷ $3.50 = 2,286 coffees/month (about 76/day)
Every coffee beyond 2,286 generates $3.50 in profit.
Calculate your break-even point with profit projections at different volumes.
Open Break-Even Calculator →How to Lower Your Break-Even Point
- Raise prices: Higher contribution margin means fewer sales needed
- Reduce variable costs: Better supplier terms, less waste, cheaper materials
- Reduce fixed costs: Negotiate rent, cut unnecessary subscriptions, share space
Using Break-Even for Pricing
Before setting a price, run break-even at several price points. If your break-even at $50 is 200 units/month, ask yourself: "Can I realistically sell 200 units?" If not, you need a higher price or lower costs. This prevents the common mistake of pricing too low and never reaching profitability.
Understand markup vs margin for better pricing decisions.
Open Markup vs Margin Calculator →