What Is the Break-Even Point?
The break-even point is the level of sales at which a business's total revenue equals its total costs, so it makes neither a profit nor a loss.
How it works
Costs fall into two groups. Fixed costs, such as rent and salaries, stay about the same whatever you sell. Variable costs, such as materials and shipping, rise with each sale. The formula in words: break-even units equal fixed costs divided by the contribution per unit, where contribution is the selling price minus the variable cost per unit.
To get break-even revenue, multiply break-even units by the price. Selling past that point produces profit, and selling less produces a loss.
Example
For example, a bakery has $6,000 of fixed costs each month. It sells a cake for $30, and ingredients and packaging cost $12, so the contribution is $18 per cake. Break-even is $6,000 divided by $18, or about 334 cakes a month, which is roughly $10,000 in sales. At 500 cakes, profit would be 166 cakes times $18, or about $2,988.
Why founders care
Break-even turns a vague goal into a number you can plan toward: how many customers or sales do we need? It helps you test pricing, decide whether a hire is affordable and judge whether an idea can work on a small scale. It also shows how long you must fund losses before reaching it.
Common mistakes
- Treating costs as fixed when they step up as you grow.
- Leaving out your own pay or taxes.
- Using an optimistic selling price you have not tested.
Frequently asked questions
How do you calculate the break-even point?
Divide fixed costs by the contribution per unit, which is price minus variable cost per unit. The result is the number of units to sell to cover all costs.
Is break-even the same as being profitable?
Not yet. Break-even is the zero-profit point. Profit begins after it. A startup can also reach break-even on one product while overall costs remain higher.
Related terms
Go deeper
- Startup Budget: How to Build One and Find Your Runway GuideCreate a startup budget step by step: costs checklist, monthly expenses, a runway formula with worked numbers, and what it really costs to start a business.
- How to Write a Business Plan: Template and Steps GuideHow to write a business plan for a startup: a section-by-section template, a lean one-page version, and what changes when the reader is an investor or a bank.
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General information, not legal, tax or financial advice. Reviewed 11 November 2026.