Insights · Planning ·
Break-even analysis: how much do you need to sell?
Your break-even point is the sales you need to cover all your costs. Below it you lose money; above it every sale contributes profit. It is the quickest way to test a price change, a new hire or a lease.
The formula
Break-even sales = fixed costs ÷ gross margin %.
Fixed costs are the ones that do not change with sales: rent, salaries, insurance, software, loan interest. Gross margin is sales minus direct costs, as a percentage of sales.
A worked example
A business has fixed costs of $40,000 a month and a 40% gross margin. Break-even = $40,000 ÷ 0.40 = $100,000 of sales a month. Every dollar of sales above that adds 40 cents of profit.
Use it for decisions
- Hiring: a $7,000 a month hire at 40% margin needs $17,500 more sales a month to pay for itself.
- Pricing: lifting margin from 40% to 45% drops break-even to about $88,900.
- Leases and loans: add the new fixed cost and recalculate.
Margins matter more than most owners think: markup vs margin, budget guide and job costing.
Quick answers
How do I calculate break-even?
Divide fixed costs by your gross margin percentage.
Why does break-even matter?
It shows the sales needed to cover costs and lets you test pricing, hiring and lease decisions.
Sources
General information only. This article does not take into account your circumstances and is not tax, legal or financial advice. Rates and rules change; check the sources above and get advice for your business before acting.
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