Calculate the sales volume needed to cover your costs and start making a profit.
Expenses that remain constant (rent, salaries, insurance).
Units to sell to cover costs
Total sales revenue needed
Every business starts with expenses. The Break-Even Point is the magical moment when your total revenue equals your total costs. At this point, you aren't losing money, but you aren't making a profit yet either. Knowing this number is critical for setting sales targets, pricing products, and assessing risk.
To calculate the number of units you need to sell, use this formula:
The denominator (Price - Variable Cost) is called the Contribution Margin. It represents how much money from each sale is left over to pay down your fixed costs.
Expenses that stay the same regardless of how much you sell. Examples: Rent, insurance, salaries, software subscriptions.
Expenses that go up with every unit you sell. Examples: Raw materials, shipping, packaging, credit card processing fees.
The margin of safety is how much sales can drop before you start losing money. It's calculated as: (Current Sales - Break-Even Sales) / Current Sales.
Yes. For a service business, a "unit" is a billable hour or a project. Variable costs are the direct labor or materials used for that specific client.