How to calculate your break-even point

The sales level where the business stops losing money. Below it, working harder makes the loss bigger.

Break-even is where total revenue equals total costs. Below it every sale contributes toward a loss; above it, toward profit.

Step-by-step

1. Enter fixed costs — rent, salaries, insurance, anything you pay regardless of sales.
2. Enter the price and variable cost per unit.
3. Read the break-even volume.

Contribution is the concept that matters

Price minus variable cost is the contribution per unit — what each sale contributes toward fixed costs. Divide fixed costs by contribution and you have the number of units needed.

Sell something for £50 that costs £20 to make, with £6,000 of fixed costs a month: contribution is £30, and you need 200 units to break even.

Why discounting is more dangerous than it looks

A discount comes entirely out of contribution. Drop that £50 price by 10% to £45 and contribution falls from £30 to £25 — a 17% cut. Break-even rises from 200 units to 240.

So a 10% discount requires 20% more volume merely to stand still. This is the arithmetic behind most unprofitable sales, and it is why a discount should always be checked against the extra volume it demands.

Fixed costs are not fixed forever

They are fixed within a range. Growth eventually requires another member of staff, a bigger unit, another machine — and break-even steps up sharply at that point. Businesses that grow through such a step and assume the old break-even applies are frequently surprised.

Frequently asked questions

What is contribution?

Selling price minus variable cost — the amount each sale contributes toward fixed costs. Fixed costs divided by contribution gives the break-even volume.

How much extra do I need to sell to cover a discount?

More than the discount, because it comes entirely out of contribution. A 10% price cut on a 60% contribution margin needs roughly 20% more volume just to break even.

Do fixed costs ever change?

They are fixed only within a range. Growth eventually forces another hire or larger premises, and break-even steps up at that point rather than rising smoothly.