Selling & pricing

What the break-even point really tells you

"How many do I need to sell to cover my costs?" That single question is the break-even point, and it is worth answering before you start and again every quarter.

Updated August 25, 2026 · About 2 min read

Contribution margin = price - variable cost, the amount each sale puts towards fixed costs.
Break-even units = fixed costs / contribution margin.
Past break-even, each additional contribution becomes profit.
Lower fixed costs or a larger contribution margin both pull the break-even point down.

Splitting fixed from variable

Fixed costs appear even when you sell nothing: rent, salaried staff, insurance, depreciation, base subscriptions.

Variable costs rise with each sale: goods, packaging, payment fees, shipping.

Some costs sit in between — hourly staff, utilities. Pick a side, document the choice and stay consistent so the numbers stay comparable over time.

Contribution margin is the engine

Contribution margin is what remains from a sale after the variable costs of making it. It is the money that pays down your fixed costs.

At a price of 15 and a variable cost of 9, each sale contributes 6. With fixed costs of 3,000 you need 500 sales to break even.

The contribution ratio — contribution divided by price — shows how much of every 100 in revenue goes towards fixed costs. Here it is 40%.

What happens above break-even

Everything you earn up to the break-even point goes to fixed costs. After it, each additional sale adds its full contribution to profit.

That is why a business hovering near break-even flips into loss with a small dip in sales. Aim for a margin of safety, not just a break-even.

Three ways to lower it

Reduce fixed costs — renegotiate rent, cut unused subscriptions, revisit staffing.

Raise the price — a larger contribution means fewer units are needed, though demand may soften.

Reduce variable costs — negotiate supply, simplify packaging, move to a lower-fee channel.

Lower fixed costs
Raise the price
Lower variable costs

Selling more than one product

With different contribution margins per product there is no single unit break-even. Use a weighted average contribution ratio based on your sales mix.

Alternatively, calculate break-even in revenue terms: fixed costs divided by the contribution ratio.

Frequently asked questions

Where does tax fit in?

It is left out of the basic calculation. Sales tax behaves like a pass-through, and income or corporate tax only applies once you are profitable — that is, above break-even.

How do I estimate this before launching?

Fixed costs are usually easy to pin down. Estimate variable costs from supplier quotes and the price from competitors, then ask whether the resulting volume is realistic.

My break-even looks impossibly high.

That usually means fixed costs are too heavy or the contribution margin is too thin. It is a signal to revisit the business model rather than to sell harder.

Results are for guidance only. Actual bills, taxes and pay depend on your contract and the official rules that apply to you.