What the break-even point means
Your break-even point is the level of sales where total revenue equals total costs. Below it you make a loss; above it, every extra sale adds profit. Knowing the number turns a vague goal like "sell more" into a clear target for the month or the year.
It is just as useful before you launch. If the break-even volume for a new product looks unrealistic, you know to rethink the price or the costs before you spend anything.
Fixed costs and variable costs
- Fixed costs stay the same whether you sell one unit or a thousand: rent, salaries, insurance, software subscriptions.
- Variable costs rise with every unit: materials, packaging, shipping, card processing fees.
Use the same period for every figure. If your fixed costs are monthly, your target profit and your result are monthly too. Your income statement is the best place to find these numbers.
The break-even formula
Break-even units = fixed costs ÷ (selling price − variable cost per unit)
The part in brackets is the contribution margin: what each sale contributes towards fixed costs. For example, with fixed costs of $10,000, a price of $50 and a variable cost of $20, each unit contributes $30, so you need to sell 334 units (333.3 rounded up) to break even. To earn a $10,000 profit as well, add it to fixed costs: $20,000 ÷ $30 = 667 units.
Ways to lower your break-even point
There are three levers: raise your price, reduce variable costs, or cut fixed costs. Even small changes add up. In the example above, raising the price from $50 to $55 cuts break-even from 334 to 286 units.
Break-even is only as accurate as the costs behind it. Tyms keeps your real costs and margins current from your bank data, so your targets stay in step with the business.