Every small business owner needs to know their break even point — the exact moment when revenue covers all costs. Use our free break even calculator to find yours instantly, or follow this step-by-step guide to calculate it manually.
What Is Break Even Point?
The break even point is the level of sales at which your total revenue exactly equals your total costs — meaning zero profit and zero loss. Any sales above the break even point generate profit. Any sales below it result in a loss.
Break Even Point Formula
Break Even Revenue = Fixed Costs ÷ Contribution Margin Ratio
Break Even Point Calculation — Real Example
Let’s say you run a small bakery:
You need to sell 834 items per month just to cover your costs. Anything above that is profit.
Fixed Costs vs Variable Costs — What’s the Difference?
How to Lower Your Break Even Point
- Reduce fixed costs — Renegotiate rent, cut unnecessary subscriptions, automate tasks
- Increase selling price — Even a 10% price increase dramatically lowers break even units
- Reduce variable costs — Buy materials in bulk, find cheaper suppliers, optimize production
- Improve product mix — Sell more high-margin products
Break Even Point for Service Businesses
For service businesses (consulting, freelancing, agencies), the formula is slightly different:
Example: $4,000 monthly costs ÷ $100/hr rate = 40 billable hours/month to break even
Frequently Asked Questions
What is a good break even point for a small business?
A good break even point is one you can realistically achieve within your first 3-6 months. Most successful small businesses aim to break even within 12-18 months. The U.S. Small Business Administration recommends maintaining at least a 20% margin of safety above your break even point.
What happens if you sell below the break even point?
If you sell below the break even point, your business operates at a loss — your revenue does not cover your total costs. This is unsustainable long-term without outside funding or a change in strategy.
How do you calculate break even point in sales dollars?
Formula: Break Even Sales = Fixed Costs ÷ Contribution Margin Ratio. Contribution Margin Ratio = (Selling Price – Variable Cost) ÷ Selling Price. Example: $5,000 ÷ 0.60 = $8,333 in monthly sales needed to break even.
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