Break-Even Point

The break-even point is the level of sales at which a business's total revenue exactly equals its total costs, meaning it earns zero profit and incurs zero loss. The most common formula, in units, is: Break-Even Units = Fixed Costs / (Price per Unit - Variable Cost per Unit), where the denominator is the contribution margin per unit.

Owner question to ask: "How many jobs or sales do I need this month just to cover my fixed costs, and how does that compare to what I actually booked?" Many owners can state their revenue goal but not their break-even volume, which is the more useful number for cash planning.

Unique caveat: break-even calculations assume costs classified as fixed and variable behave predictably across the relevant range, which breaks down at very low or very high volume — for example, exceeding capacity may require a new fixed cost like additional rent or equipment, shifting the whole calculation. Break-even point also ignores timing: a business can be profitable on paper for the month yet still face a cash shortfall if customer payments lag behind when its own costs are due, which is a separate concern from profitability. This definition is educational and does not replace advice from a licensed accountant or tax professional familiar with your specific books.

Owners should confirm treatment with their bookkeeper before using this figure in a loan application, valuation, or tax filing. Small differences in chart-of-accounts setup can change how this number is calculated, so consistency period over period matters more than precision in any single month.

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Definition source

SBA — Break-even point defines break-even as total revenue equaling total cost, and explains contribution margin as sale price less variable cost (or that difference divided by sale price for its percentage).