Break-even analysis explained

The break-even point is the number of units you must sell for revenue to equal total costs. Below it you lose money; above it, every extra sale adds profit.

It turns a vague question — is this business viable? — into a concrete target you can plan around.

Fixed costs stay the same however much you sell: rent, salaries, software subscriptions and insurance. Variable costs rise with each unit: materials, packaging, shipping and payment fees.

Getting this split right is the most important step. Misclassifying a cost changes the answer significantly.

Contribution margin per unit is the price minus the variable cost. Break-even units equal fixed costs divided by the contribution margin, rounded up.

With 10,000 of fixed costs, a price of 100 and a variable cost of 50, the contribution margin is 50 and you break even at 200 units. Selling 201 units is your first profitable sale.

Test changes before you make them. Raising the price by 10% or cutting variable cost can lower the break-even point sharply, while adding a fixed cost raises it.

Compare the break-even number with realistic demand. If you would need to sell more than the market can buy, change the price, the costs or the plan.