Break-even is the point where gross profit covers fixed operating expenses. Below it, the business loses money. Above it, additional contribution begins creating operating profit.
Identify fixed expenses
List costs that do not change directly with each sale: administrative payroll, rent, insurance, base software, professional services, and other overhead.
Calculate contribution margin
Contribution margin is revenue minus the variable costs required to make those sales. Divide contribution by revenue to calculate the contribution-margin percentage.
Use the formula
Break-even revenue = Fixed expenses ÷ Contribution-margin percentage.
If fixed expenses are $8,000 and contribution margin is 55%, monthly break-even revenue is approximately $14,545.
Make the number operational
- Convert monthly break-even revenue into weekly or daily targets.
- Divide it by average sale value to estimate required transactions.
- Compare required volume with actual capacity.
- Add the desired profit to fixed expenses to calculate a profit target.
Recalculate break-even when prices, wages, materials, sales mix, or overhead change. An old break-even number can create false confidence.