Break-even calculation: how much you need to sell to cover your costs
The break-even point tells you how much you need to sell before you earn anything. It answers practical questions: is the new location viable, can we afford another employee, how far can a discount go? The calculation is simple once costs are sorted correctly.
Fixed and variable costs
Fixed costs arise regardless of sales: rent, salaries, insurance, software, loan instalments. Variable costs grow with every sale: goods, packaging, payment fees, commissions. Some costs are mixed; restaurant staff, for example, are partly fixed and partly dependent on volume. Assign them as realistically as you can.
Contribution margin and the formula
The contribution margin is the price minus the variable costs per unit. Break-even volume = fixed costs ÷ contribution margin per unit. If you sell many different products, use the average contribution margin ratio instead: break-even revenue = fixed costs ÷ contribution margin ratio.
Example: a restaurant
A restaurant with monthly fixed costs of €18,000:
- Average bill per guest: €32 net.
- Variable costs (food, drinks, payment fees): 35%, or €11.20.
- Contribution margin per guest: €20.80.
- Break-even: €18,000 ÷ €20.80 ≈ 866 guests a month, about 34 a day over 26 opening days.
Using the result
Compare the break-even with real capacity: if 34 guests a day means a full house every evening, the concept is fragile. The calculation also shows the effect of decisions: a 10% discount lowers the contribution margin to €17.60 and raises break-even to about 1,023 guests. Recalculate whenever prices, rent or wages change.
Keep the numbers current automatically
Once a month, the figures from the till, accounting and payroll are enough for an updated break-even analysis. We connect these sources to a simple dashboard that shows revenue, contribution margin and the distance to break-even; tell us your systems, and you will receive a fixed price.
Frequently asked questions
- Is break-even the same as being profitable?
- No. At break-even you earn exactly nothing. You also need a margin for taxes, investments and your own income, unless it is already included as a fixed cost.
- Should my own salary be included?
- Yes, as a fixed cost, even as a sole trader. Otherwise the business only looks viable because you work for free.
- How often should I recalculate?
- At least once a year and with every major change: a new location, new prices, new staff.
Tell us which till, accounting and payroll tools you use. We will build a dashboard that shows your distance to break-even every month.
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