Break-even Explained

Every entrepreneur should know their break-even point. It’s the sales level where your revenue finally covers your costs. Before this point you’re running at a loss, after it you start to build profit.

Break-even is not just a number. It’s a decision-making tool that helps you plan with confidence, test scenarios, and know exactly what it takes to keep the lights on.

The formula

The basic formula is:

Break-even Sales = Fixed Costs ÷ Contribution Margin Ratio

Where:

Fixed Costs are expenses like rent, salaries, or insurance that don’t change with sales.

Contribution Margin is Sales Price – Variable Costs.

Contribution Margin Ratio is Contribution Margin ÷ Sales Price.

A simple example

A small brand sells premium office chairs.

Sales Price per Unit: £400

Variable Cost per Unit: £220 (materials, packaging, shipping)

Contribution Margin per Unit: £180

Contribution Margin Ratio: 45%

Fixed Costs: £18,000 per month (rent, staff, overheads)

Break-even Sales = £18,000 ÷ 0.45 = £40,000

That means the business needs 100 sales per month just to cover costs. Sale number 101 is where profit begins.

Why it matters

Pricing clarity – See if your prices truly cover both variable and fixed costs.

Planning growth – Run scenarios: What if rent rises? What if you add a new staff member?

Investor confidence – Break-even shows whether your model is realistic.

Free tool: Pricing & Finance Toolkit

Our Pricing & Finance Toolkit includes a built-in break-even calculator. Just enter your fixed costs, variable costs, and prices — the toolkit runs the numbers for you.

👉 Get the Starter Kit here

and make decisions with clarity.

Final thoughts

Break-even analysis gives you a clear target and keeps you focused on what matters: sales that cover costs and create profit. It’s one of the simplest but most powerful tools every entrepreneur can master.

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