Guide · 7 min read
Break-even point: how to calculate it and use it
The break-even point is the sales volume at which revenue covers all costs and profit is zero. Below it you lose money, above it you earn. It is the first number to know before opening anything.
- Break-even in units = fixed costs ÷ (price − variable cost per unit)
- Break-even month and payback month are different things
- Lowering fixed costs moves break-even more reliably than raising prices
- Check the break-even volume against your real capacity
The formula
You need three numbers: monthly fixed costs, price per unit and variable cost per unit. The difference between price and variable cost is the contribution margin: what each sale brings toward fixed costs.
Break-even volume = fixed costs ÷ contribution margin per unit.
Break-even revenue = fixed costs ÷ contribution margin ratio, where the ratio is the contribution margin divided by the price.
A worked example
Fixed costs: rent $3,000, staff $7,500, other $1,000, total $11,500 a month. Price per cup $4.80, cost of goods 32%, so variable cost is $1.54 and contribution is $3.26 per cup.
Break-even: 11,500 ÷ 3.26 ≈ 3,530 cups a month, or about 118 a day with 30 working days. Revenue at break-even is about $16,900.
Now compare 118 cups a day with the traffic at your location. If similar cafés nearby sell 80, the plan needs a different location, price or cost structure.
Break-even month vs payback
The break-even month is when monthly profit first becomes positive. Payback is when the cumulative cash flow covers everything you invested at the start. A café can break even in month 5 and pay back the fit-out only in month 24.
Both matter: the first shows the business model works, the second shows when your money returns.
How to lower the break-even point
- Cut fixed costs: a smaller space, part-time staff at the start, fewer subscriptions.
- Raise contribution: better purchase prices, a higher-margin assortment, add-ons.
- Raise prices carefully: check how many customers you lose.
Fixed costs are the most reliable lever because they do not depend on how customers react.
Common mistakes
- Forgetting payroll taxes and owner payouts in fixed costs.
- Using markup instead of margin in the contribution.
- Calculating break-even once and not updating it when rent or prices change.
- Ignoring capacity: a break-even of 400 visits a month in a salon that can take 300 means the format does not work.
Break-even in FinModel
FinModel shows the break-even month on the dashboard and recalculates it with every change. On the Goals screen you can set a target profit and see what has to change: price, volume or costs. The AI assistant explains which lever moves break-even the most for your model.