How to Calculate Break-Even
Break-even is the moment your total sales have covered your total costs — the point where a venture stops losing money and starts making it. The formula is elegantly simple: divide your fixed costs by your contribution margin, which is the price of one unit minus what that unit costs you to make.
Fixed costs and contribution margin
Fixed costs are the money you spend regardless of sales — equipment, a website, initial inventory, licenses. Contribution margin is the profit each sale contributes toward covering those fixed costs. If you spent $1,200 to start and each unit contributes $18 of margin, you break even after about 67 units. Every sale beyond that is pure profit.
Using break-even to decide
The break-even number turns a fuzzy 'is this worth it?' into a concrete target. If breaking even requires selling more units than you could realistically move, the idea needs rethinking — a higher price, lower costs, or a different plan. It's the fastest reality check for any side hustle or product, and worth running before you spend the startup money, not after.
Frequently asked questions
- How do I calculate break-even?
- Divide fixed costs by contribution margin (price per unit minus cost per unit) for the units you must sell.
- What is contribution margin?
- The profit each sale contributes toward fixed costs — price minus per-unit cost.
- Why does break-even matter?
- It tells you whether your sales targets are realistic before you commit money to an idea.