Break-Even Point
Last reviewed 2026-05-11 by Asad Ali, Founder & CEO
The sales volume at which total revenue exactly equals total costs — neither profit nor loss.
The break-even point (BEP) is the level of sales at which total revenue exactly equals total costs, meaning the business produces zero profit and zero loss. It can be expressed in units sold or in revenue dollars and is the central output of cost-volume-profit (CVP) analysis. Calculating BEP requires separating costs into fixed (rent, salaries of permanent staff, insurance — costs that don't change with output) and variable (raw materials, hourly labor tied to production, packaging, sales commissions — costs that scale with volume). The unit-level break-even uses contribution margin per unit (price minus variable cost per unit); the dollar-level break-even uses contribution margin ratio. Sensitivity analysis — recalculating BEP after raising prices 5%, cutting fixed costs 10%, or facing a 15% variable-cost increase — is one of the most useful planning exercises a small business can do because it quickly reveals which lever moves the bottom line most. BEP can also be calculated on a cash-only basis (excluding non-cash items like depreciation) to find the minimum sales needed to keep the business solvent.
Formula
Break-Even Point (units) = Fixed Costs ÷ (Price per Unit − Variable Cost per Unit). Break-Even Point (revenue $) = Fixed Costs ÷ Contribution Margin Ratio, where CM Ratio = (Price − Variable Cost) ÷ Price. Cash Break-Even = (Fixed Costs − Non-Cash Items like depreciation) ÷ Contribution Margin per Unit.Example
A coffee shop has $8,000 in monthly fixed costs (rent $3,500, manager salary $3,500, insurance $500, software $500). Each cup of coffee sells for $5 with $2 in variable costs (beans, milk, cup, lid, hourly barista time) — contribution margin per cup = $5 − $2 = $3. Break-even (units) = $8,000 ÷ $3 = 2,667 cups per month, or about 89 cups per day in a 30-day month. In revenue dollars, BEP = $8,000 ÷ (60% contribution margin ratio) = $13,333. If the owner raises prices 10% to $5.50 (keeping variable cost flat), CM per unit rises to $3.50, and break-even falls to 2,286 cups — a 14% reduction in required volume from a 10% price increase.
Why It Matters for Your Business
Knowing your break-even point tells you the minimum sales needed to survive, helping you set realistic targets, evaluate whether a new product or location is viable, and understand exactly how much a price cut or cost increase will hurt.
Practical Tips
- •Recalculate break-even quarterly and any time prices, fixed costs, or variable costs change materially — stale BEPs lead to bad targets
- •Run a sensitivity table at ±5% and ±10% on price, variable cost, and fixed cost — you'll quickly see which lever has the biggest leverage on profitability
- •Run a separate cash break-even excluding depreciation and other non-cash items — this is the absolute minimum you need to avoid burning cash
- •Use break-even analysis before launching new products, opening a new location, or hiring a fixed-cost employee — if the required volume is implausible, the decision answers itself
Common Questions About Break-Even Point
How is break-even point calculated?
The formula is: Break-Even Point (units) = Fixed Costs ÷ (Price per Unit − Variable Cost per Unit). Break-Even Point (revenue $) = Fixed Costs ÷ Contribution Margin Ratio, where CM Ratio = (Price − Variable Cost) ÷ Price. Cash Break-Even = (Fixed Costs − Non-Cash Items like depreciation) ÷ Contribution Margin per Unit.. See the worked example below for a step-by-step calculation using realistic numbers.
What is an example of break-even point?
A coffee shop has $8,000 in monthly fixed costs (rent $3,500, manager salary $3,500, insurance $500, software $500). Each cup of coffee sells for $5 with $2 in variable costs (beans, milk, cup, lid, hourly barista time) — contribution margin per cup = $5 − $2 = $3. Break-even (units) = $8,000 ÷ $3 = 2,667 cups per month, or about 89 cups per day in a 30-day month. In revenue dollars, BEP = $8,000 ÷ (60% contribution margin ratio) = $13,333. If the owner raises prices 10% to $5.50 (keeping variable cost flat), CM per unit rises to $3.50, and break-even falls to 2,286 cups — a 14% reduction in required volume from a 10% price increase.
Why does break-even point matter for my business?
Knowing your break-even point tells you the minimum sales needed to survive, helping you set realistic targets, evaluate whether a new product or location is viable, and understand exactly how much a price cut or cost increase will hurt.
How does FiscalInsights help with break-even point?
FiscalInsights tracks break-even point automatically as part of its AI bookkeeping workflow. Connect your bank accounts and the platform handles categorization, reconciliation, and reporting without manual entry.
Related Terms
More Business Terms
Accounts Reconciliation
Ensuring account balances match between different records.
Financial Statements
Reports summarizing financial performance and position.
Fixed Costs
Expenses that remain constant regardless of production.
Variable Costs
Expenses that change with production or sales volume.
Gross Margin
Gross profit as a percentage of revenue.
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