Business Break-Even Analysis
Break-even analysis determines how many units you must sell to cover all fixed and variable costs—the point where revenue equals expenses and profit is zero.
Fixed costs (rent, salaries, insurance) remain constant regardless of sales volume, while variable costs (materials, commissions) change with each unit sold.
Formula: Break-even units = Fixed Costs Ă· (Price per Unit - Variable Cost per Unit).
Example: With $50,000 monthly fixed costs, $30 product price, and $15 variable costs, break-even is 3,334 units ($50,000 Ă· $15 margin).
Understanding break-even helps set sales targets, price products profitably, and evaluate business viability.
A lower break-even point provides more cushion against slow months and makes profitability more achievable.
Strategies to lower break-even include reducing fixed costs (remote work, shared spaces), negotiating better supplier rates to lower variable costs, or increasing prices if market allows.
Calculate break-even for new product launches, business expansions, and operational changes to assess risk before committing resources.
Every unit above break-even generates pure profit at the contribution margin rate.