How to Calculate Your Business Break-Even Point

Use a consistent period and unit

Break-even is the sales level where revenue covers the costs included in your model. Choose a period, such as a month, and a unit, such as one product, appointment or project. Do not mix annual rent with monthly software costs or a day rate with an hourly delivery cost.

Fixed costs remain broadly the same within planned capacity. Variable costs increase with sales. Split mixed costs: a platform may charge a monthly fee plus a transaction charge.

Calculate contribution

Contribution per unit is selling price minus variable cost. At £50 price and £20 variable cost, contribution is £30. Contribution margin is £30 ÷ £50 = 60%.

This £30 covers fixed costs. Once those are covered, additional contribution adds to operating profit under the model assumptions. It is not a guarantee of cash available in the bank.

Divide fixed costs by contribution

At £1,500 monthly fixed costs and £30 contribution per sale, break-even is 50 units and £2,500 revenue. If fixed costs rise to £1,520, the exact threshold is 50.666… units and £2,533.33 revenue. Selling whole units requires 51 sales, generating £2,550.

At 40 units in the original example, contribution is £1,200 and the model shows a £300 operating loss. At 60 units it shows £300 operating profit. This helps you see the effect of modest volume changes.

Challenge the assumptions

At zero contribution, nothing is left to cover positive fixed costs. At negative contribution, each additional sale increases the loss. Change the economics before relying on more sales.

For multiple products, a weighted average contribution assumes a stable sales mix. Higher volume may require more staff or space, causing fixed costs to step up. Recalculate at that threshold. Include the cost of your own work if the business must support you.

Keep a cash budget alongside it

Break-even does not automatically model payment delays, loan principal repayments, tax payments or upfront investment. Compare required sales with evidence of demand and actual delivery capacity. Add a profit target to fixed costs when modelling the contribution needed for a particular operating profit, then separately check the cash needed to reach it.