Break-even point
In short. The break-even point is the level of sales at which total revenue equals total costs, so the business neither makes a profit nor a loss. Above it the business earns a profit. It is usually calculated as fixed costs divided by the price minus the variable cost per unit.
Last checked against its sources on 10 October 2026. How we write these.
The US Small Business Administration gives the formula as fixed costs divided by price minus variable costs, which gives the break-even point in units. It also notes that fixed costs, such as rent, salaries and insurance, stay the same regardless of how much you produce.
Take a market stall with 600 pounds of monthly fixed costs. Each item sells for 12 and costs 4 to make, leaving 8 towards the fixed costs. Break-even is 600 divided by 8, or 75 items a month. Everything sold beyond that adds profit.
The figure turns an idea into a testable target. Before launching, you can ask whether 75 sales a month is realistic or whether the plan depends on hopes. It also shows the effect of changes: a higher price or lower costs reduces the number of sales needed, while a new lease raises it.
The SBA suggests allowing some extra, around 10 per cent, for unpredictable expenses. Break-even assumes steady prices and costs, so it is best treated as a guide to be recalculated whenever either changes.
Questions people ask
What happens below the break-even point?
The business makes a loss, because revenue does not cover total costs. How long it can sustain that depends on cash reserves.
Can break-even be calculated in pounds instead of units?
Yes. Divide fixed costs by the gross margin percentage to find the sales revenue needed to break even.
Sources
- SBA: Calculate your startup costs checked 10 October 2026