Break-Even Analysis: Know When You Start Making Money
6 min read · Updated June 2026
Every business has a moment when revenue finally covers all costs. Before that point, you're losing money. After it, every additional sale generates profit. That tipping point is your break-even point — and knowing it is essential for pricing, planning, and survival.
What Is Break-Even?
Break-even is the point where total revenue equals total costs. At break-even, profit is exactly $0. Below it, you lose money. Above it, you profit.
The Formula
Break-Even Units = Fixed Costs ÷ (Selling Price − Variable Cost per Unit)
Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio
Understanding the Components
- Fixed costs — Rent, salaries, insurance, software subscriptions (don't change with sales volume)
- Variable costs — Materials, shipping, payment processing fees (scale with each unit sold)
- Contribution margin — Selling price minus variable cost per unit (how much each sale contributes to covering fixed costs)
- Contribution margin ratio — Contribution margin ÷ selling price (percentage of each dollar that goes toward fixed costs)
Example: SaaS Business
Step-by-step calculation
Monthly fixed costs: $10,000 (server, tools, salary)
Selling price: $49/month per user
Variable cost per user: $5 (support, email, payment fee)
Contribution margin: $49 − $5 = $44
Break-even: $10,000 ÷ $44 = 228 users
Break-even revenue: 228 × $49 = $11,172/month
Target Profit Analysis
Want to make $5,000/month profit? Add it to fixed costs:
Units needed = ($10,000 + $5,000) ÷ $44 = 341 users
When to Recalculate
- You change your pricing
- Your supplier raises costs
- You add new fixed expenses (hire, office, tool)
- You enter a new market with different costs
🧮 Calculate your Break-Even Point
Use our Break-Even Calculator to instantly find your break-even point, contribution margin, and target profit units.
The Bottom Line
- Break-even = fixed costs ÷ contribution margin per unit
- Lower fixed costs or increase contribution margin to break even faster
- Always include ALL costs — missing expenses gives a false break-even
- Use target profit analysis to set realistic sales goals
Disclaimer: This guide is for informational purposes only and does not constitute financial advice.