How to Calculate Your Break-Even Point

A $25 product doesn't earn you $25

It earns you the contribution margin — price minus the variable cost of making and delivering that one unit.

$25 − $9 = $16

That $16 is what one sale actually puts toward your rent. And it's the number the whole calculation turns on.

$4,000 of fixed costs ÷ $16 = 250 units to break even.

Revenue isn't money you keep

Break-even at 250 units is $6,250 of revenue — not $4,000.

The extra $2,250 went straight back out on the variable cost of making those 250 units.

That gap is why a busy month can still lose money, and why "we did $X in revenue" is a much weaker statement than it sounds. If the top line looks healthy and the bank account doesn't, the difference is almost always sitting right here.

What a 10% discount really costs

This is the part worth internalising before your next sale.

A 10% price cut on that $25 product:

	Before	After
Price	$25	$22.50
Variable cost	$9	$9
Margin	$16	$13.50
Break-even	250 units	297 units

A 10% discount cuts your margin by 16% and adds 47 units to the target — you need almost a fifth more sales just to stand still.

And the thinner your margin, the worse it gets. On a low-margin product a modest discount can move break-even by half.

The same asymmetry works in your favour on price rises: going from $25 to $50 doesn't double the margin, it takes it from $16 to $41 — more than double.

Getting costs into the right bucket

This is where the calculation actually goes wrong, not in the arithmetic.

Fixed — happens whether you sell anything: rent, salaries, software, insurance, loan repayments.

Variable — only happens when you sell: materials, packaging, shipping, payment processing, commission.

The ones people misfile:

• Payment processing fees — variable, and frequently forgotten entirely
• Returns and refunds — effectively variable
• Your own time — fixed if salaried, variable if paid per job
• Anything billed "per user" or "per order" — check which it really is

The direction matters. Treating a fixed cost as variable understates your break-even, which is the dangerous way to be wrong.

The units-per-day figure is the sanity check

The calculator asks for the days in the period so it can turn the monthly target into a daily one — set it to 30 for a month, 7 for a week, 365 for a year, or whatever period your fixed costs are quoted over.

250 units a month is an abstraction. 8.3 a day is something you can compare against what actually happened last Tuesday.

If that number is well beyond anything you've ever achieved, the problem isn't effort. It's the price, the variable cost, or the fixed-cost base — and no amount of selling harder fixes any of those.

When it shows a dash

That means your variable cost is at or above your price. Every sale loses money, and no number of them reaches break-even.

Worth taking seriously rather than treating as a rounding problem: a business in this position gets further from profitability with every order, and selling more makes it worse.

If you sell more than one thing

This is a single-product model, and multi-product businesses have a blended margin that shifts with the sales mix.

Which produces a genuinely counterintuitive effect: selling more of your low-margin line pushes break-even up even while revenue rises. A great month by revenue can be a worse month by profitability, and it catches people out precisely when they're least suspicious.

Run each line separately, and recalculate when the mix moves.

What's not in it

Tax. Step-changes in fixed costs as you grow into a bigger space or another hire. The fact that variable costs often fall with volume.

Break-even is a snapshot at today's costs — a diagnostic, not a forecast.

Print the worksheet — it has two separate tables for fixed and variable costs, because sorting them correctly is the whole job.

General information, not financial advice.