Your break-even point is the number of sales you need each month to cover all your costs, with no profit and no loss. The formula: monthly fixed costs ÷ (selling price − variable cost per unit). If your fixed costs are $250 and each sale leaves you $9.87 after materials, you need to sell 26 units a month. From sale 27 on, you are making money.
Most small business owners know how much they sell, but not how much they need to sell. That is why a slow month catches them off guard. This guide walks through the formula with a real example, which costs go where, and how to bring that number down.
What is the break-even point?
It is the point where money coming in from sales equals money going out in costs. Below it, you lose money even while selling. Above it, every extra sale is real profit.
It helps with three decisions: whether this month's sales goal is realistic, whether a new expense (a stall at a market, a studio, an assistant) makes sense, and how far you can discount in a promotion without working for free.
What is the break-even formula?
- In units: break-even = monthly fixed costs ÷ (price − variable cost per unit).
- In revenue: break-even = monthly fixed costs ÷ contribution margin as a percentage.
The part in brackets is the contribution margin: what each sale leaves you to pay fixed costs. If you take cards or sell through a delivery app, subtract that fee too. The U.S. Small Business Administration's break-even calculator uses the same formula.
Worked example: handmade soy candles
Take the 8 oz soy candle from our pricing guide (in Spanish). Wax, jar, wick, fragrance oil, shipping the supplies, your time and the label add up to a variable cost of $9.63 per candle. It sells for $19.50, paid by bank transfer or cash with no fees.
Monthly fixed costs, paid whether you sell or not, add up to $250: $100 for a market stall, $60 for internet and phone, $40 for electricity and $50 for tools and apps.
| Item | Amount |
|---|---|
| Selling price | $19.50 |
| Variable cost per candle | −$9.63 |
| Contribution margin per candle | $9.87 |
| Monthly fixed costs | $250.00 |
| Break-even point ($250 ÷ $9.87 = 25.3) | 26 candles a month |
Always round up: at 25 candles you are still a few cents short. In revenue, that is 26 × $19.50 = $507 in sales a month just to reach zero.
Want to earn $400 a month on top? Add it to fixed costs: ($250 + $400) ÷ $9.87 = 66 candles. Now your sales goal is a number, not a wish.
Which costs are fixed and which are variable?
Simple rule: if the cost goes up when you sell more, it is variable. If you pay it even when you sell nothing, it is fixed.
- Variable costs: materials, packaging, per-order shipping, card or delivery-app fees, and your labor if you price it per piece.
- Fixed costs: rent, market stalls, internet, phone, electricity, subscriptions, accountant, monthly ads, and your own salary if you pay yourself a fixed amount.
The most common mistake is leaving out your own time. If it is nowhere in the numbers, your break-even point looks low and comfortable, but you are working for free.
How do you lower your break-even point?
- Raise the price. At $22 a candle, the contribution margin becomes $12.37 and break-even drops from 26 to 21 candles.
- Cut the variable cost. If you find jars locally for $1 less, the margin rises to $10.87 and you need 23 candles.
- Trim fixed costs. Swap a monthly market stall for two big fairs a year and the whole number drops.
- Sell bundles. A gift box of 3 candles leaves more margin per sale than three single candles.
Not sure about your starting price? Read how to calculate a selling price (in Spanish) or open Precio Justo and let it do the math.
What if I sell several products?
Start with your best seller: it carries most of your revenue. If your products have similar margins, use the average margin. If they are very different (say, cakes and cookies), calculate each one and split fixed costs by how much of each you sell.
Common break-even mistakes
- Forgetting fees. Card and app fees come out of every sale and push your break-even point up.
- Mixing personal and business costs. Your home internet can be split, not charged in full to the business.
- Calculating it once. When shipping or butter prices change, so does the number. Recalculate whenever a cost changes.
- Using the price with sales tax. Sales tax or VAT belongs to the government, not to you. Use the pre-tax price.
Frequently asked questions
In units: monthly fixed costs ÷ (selling price − variable cost per unit). In revenue: fixed costs ÷ contribution margin as a percentage. Always round the result up.
The business loses money at those numbers. Raise the price, lower the cost per unit or cut fixed costs until break-even sits below what you actually sell.
Yes. A fixed salary goes into fixed costs. If you charge your time per piece, it goes into the variable cost. What matters is that it is somewhere.
Whenever an important cost or your price changes, and at least every three months. Precio Justo saves your products, so recalculating takes seconds.
Wrapping up
The break-even point turns "am I doing OK?" into a number you can check every week. Work it out for your best seller, put it in your monthly goal and revisit it whenever a cost changes.
Start today: open Precio Justo and calculate your price and break-even point for free. Precio Justo Pro (USD 15 a month) saves unlimited products, shows margin scenarios and exports a cost sheet as PDF.
Want to sell online with prices that actually add up? See how we build custom websites and online stores and the projects we have shipped.