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Break-even Point Explained

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Learn how to calculate break-even point using fixed and variable costs, with simple examples for products and services. Includes a break-even calculator.

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Break-even Point Explained (Fixed vs Variable Costs) + Examples

Your break-even point is where total revenue = total costs. At break-even, you’re not making a profit — but you’re not losing money either.

Break-even helps you quickly answer:

  • How many units do I need to sell?
  • How many clients do I need per month?
  • What price makes this sustainable?

Fixed costs vs variable costs (the key concept)

  • Fixed costs don’t change with sales volume (rent, software, insurance).
  • Variable costs increase with each unit sold (materials, shipping, payment processing fees).

Break-even formula (units)

Break-even units = Fixed Costs ÷ (Price − Variable Cost per Unit)

Where:

  • Price − Variable Cost per Unit = contribution margin per unit

Example 1: Selling a product

You sell a product for $50.
Each unit costs $20 to make/ship.
Fixed costs are $1,200/month.

  • Contribution margin = 50 − 20 = $30
  • Break-even units = 1,200 ÷ 30 = 40 units

You need to sell 40 units/month to break even.

Example 2: Selling a service (clients)

You charge $300/client and spend $60/client on tools + delivery costs.
Fixed costs are $1,500/month.

  • Contribution margin = 300 − 60 = $240
  • Break-even clients = 1,500 ÷ 240 = 6.25 → 7 clients

You need 7 clients/month to break even.

Common mistakes (that break the math)

  1. Forgetting payment processing fees (they’re variable costs)
  2. Mixing owner salary into “profit” (decide whether it’s fixed cost or profit target)
  3. Using revenue instead of margin (break-even is margin-driven)
  4. Ignoring seasonality (monthly break-even can vary)

Run your break-even in seconds

Use the DailyROI Break-even Calculator:
Break-even Calculator

FAQ

What if my variable cost changes over time?

Use an average, then rerun scenarios (best / expected / worst).

What if price changes?

Break-even is extremely sensitive to price. Even small price changes can drastically lower required volume.

What if I have multiple products?

Use a weighted average contribution margin or calculate break-even per product line.

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