Before you sign a lease, set a price, or take on a business loan, there is one number you need: the sales required to cover every cost. That number comes from a break-even calculator for small businesses.
This guide gives you the exact formula, a step-by-step method, and worked examples for product, service, and restaurant businesses.
Small Business Break-Even Calculator
Find out approximately how many units or how much revenue your small business needs to cover cost every month.
Enter your numbers on the left to see your break-even analysis.
How to Calculate Your Break-Even Point in 4 Steps
The four steps below are a quick reference on how to calculate your break-even point:
- List every fixed cost. Rent, salaries, insurance, subscriptions, and loan repayments.
- Calculate variable cost per unit. Materials, packaging, shipping, and per-transaction fees.
- Calculate the contribution margin. Subtract variable cost per unit from selling price per unit.
- Apply the formula. Divide total fixed costs by the contribution margin per unit. The answer is your break-even point in units.
Two Formulas Every Small Business Owner Should Know
You can use two formulas to calculate your break-even point. One gives a unit number; the other a dollar number.
Break-Even Point in Units
The break-even formula helps small business owners decide whether their pricing model is financially viable before launching. This formula produces the minimum number of units to sell, not the target or ideal.
Break-Even Units = Fixed Costs ÷ Contribution Margin per Unit
Example: fixed costs $6,000/month, selling price $50, variable cost $20, contribution margin $30. Break-even = $6,000 ÷ $30 = 200 units per month.
Break-Even Point in Dollars
The break-even dollars formula uses the contribution margin ratio. Use the dollar version when units are messy, where calculating unit-level break-even would require separate calculations for every SKU (e.g., services, multi-product setups).
Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio
Example: CM Ratio = $30 ÷ $50 = 0.60. Break-Even Revenue = $6,000 ÷ 0.60 = $10,000/month. Check: 200 × $50 = $10,000.
Where:
Contribution Margin Ratio = Contribution Margin per Unit ÷ Selling Price per Unit
The Contribution Margin: The Number Both Formulas Depend On
The contribution margin per unit is the amount each sale contributes toward covering fixed overhead. A higher CM means fewer sales to break even. Raise it by lifting prices or cutting variable costs.
Do not confuse CM (variable costs only) with gross profit margin. Gross profit margin uses cost of goods sold (COGS), which may include some fixed costs allocated to production. Contribution margin uses only variable costs.
What Break-Even Tells You and What It Doesn’t
The break-even point is where total revenue equals total costs. The break-even formula calculates the exact number of units or revenue needed to cover all business costs with zero profit or loss.
A minimum sales target is useful for pricing, hiring, and funding decisions. Startup founders use break-even as a key milestone in their first-year financial projections.
Break-Even Calculations for Three Common Business Types
Here are examples of break-even calculations across different businesses:
Product-Based Business
Scenario: Online retailer selling handmade candles
| Item | Amount |
| Fixed costs | $4,000/month |
| Selling price per unit | $35 |
| Variable cost per unit | $14 |
| Contribution margin | $21 |
| CM ratio | 60% |
| Break-even units | 191 candles |
| Break-even revenue | $6,667 |
At $35 per candle, this business needs to sell roughly 191 candles per month before it begins to turn a profit. Selling 200 candles generates $200 in profit; selling 180 generates a $220 loss. Tracking break-even progress monthly lets you measure performance against the financial plan.
Service-Based Business
Scenario: Freelance graphic designer (hours-based)
| Item | Amount |
| Fixed costs | $2,300/month |
| Hourly rate | $110 |
| Variable cost per hour | $10 |
| Contribution margin per hour | $100 |
| CM ratio | 91% |
| Break-even hours | 23 hours |
| Break-even revenue | $2,530 |
This designer needs just 23 billable hours per month to cover all costs (roughly 5-6 hours per week). Any billable hour beyond that is profit. Service businesses with low variable costs typically have high contribution margins and lower break-even points than product businesses with equivalent fixed costs.
Restaurant or Food Business
Scenario: A café with table service
| Item | Amount |
| Fixed costs | $15,000/month |
| Average revenue per cover | $25 |
| Variable cost per cover | $10 |
| Contribution margin per cover | $15 |
| CM ratio | 60% |
| Break-even covers | 1,000 covers |
| Break-even revenue | $25,000 |
At 1,000 covers per month across roughly 25 operating days, this café needs to serve 40 customers per day to break even. The break-even calculation helps restaurant owners figure out how many covers per day are needed to break even on fixed operating costs.
Beyond Break-Even: Margin of Safety and Target Profit
Other than calculating for break-even, you can also compute the following:
Margin of Safety
Margin of safety measures how much sales can fall before slipping below break-even. The margin of safety reveals whether a business is operating with a healthy buffer above the break-even threshold.
Margin of Safety = Current (or Projected) Sales − Break-Even Sales Margin of Safety % = (Current Sales − Break-Even Sales) ÷ Current Sales × 100
If the candle business from the earlier example sells 250 units against a break-even of 191, the margin of safety is 59 units (23.6%). This means sales could fall by nearly a quarter before the business starts losing money.
Target Profit
The break-even formula can be modified to calculate the sales volume required to hit a specific profit target:
Target Sales (Units) = (Fixed Costs + Target Profit) ÷ Contribution Margin per Unit
If the candle business wants $3,000/month in profit, ($4,000 + $3,000) ÷ $21 = 333 units/month.
Four Mistakes That Skew Your Break-Even Number
Here are the most common errors to take note of when using the break-even calculator or formula.
- Misclassifying costs. The formula only works if you separate fixed costs (rent, salaries, insurance) from variable costs (materials, shipping, commissions) accurately.
- Forgetting one-time startup costs. The basic formula uses ongoing monthly costs. Equipment purchases or website builds are not included unless you spread them over a payback period.
- Using revenue instead of contribution margin in the denominator. Some owners divide fixed costs by the selling price rather than by CM. The break-even number comes out way too low.
- Ignoring tax. Standard break-even is pre-tax. Canadian-incorporated businesses can use the small business deduction to reduce their tax burden.
See our guide on tax write-offs for small businesses.
Putting the Number to Work: Five Decisions Break-Even Informs
A solid break-even analysis provides a foundation for setting annual sales targets, budgets, and profit goals for the coming year.
- Pricing. Break-even guides pricing decisions by showing how much you’re supposed to sell and how many units you need to sell.
- Startup viability. If your break-even is higher than your realistic monthly capacity, the model needs work before launch.
- Hiring. Adding a salary raises fixed costs. Recalculate before you hire.
- Loan applications. A clear break-even number supports loan applications and investor pitches by quantifying the revenue milestone needed for profitability.
- Price or cost changes. The formula enables what-if scenario testing, so you can adjust price, cost, or volume to see the impact on break-even before committing.
Structure Your Business to Reach Break-Even Faster with Ownr.co
Know your break-even point. Now build the business structure that helps you reach it. Ownr makes it simple to incorporate.
Ownr helps Canadian entrepreneurs incorporate, keep corporate records, and stay CRA-compliant.
For first-time tax filing, see our filing small business taxes for the first time guide.
Frequently Asked Questions
What is the break-even formula?
The break-even point formula is Fixed Costs ÷ Contribution Margin per Unit = Break-Even Units. The dollar version is Fixed Costs ÷ Contribution Margin Ratio = Break-Even Revenue. Use the unit version for product businesses and the dollar version for service or multi-product setups.
How do you calculate the break-even point in Dollars?
Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio. Example: $5,000 fixed costs ÷ 0.50 CM ratio = $10,000 break-even revenue.
What is the difference between fixed costs and variable costs?
Fixed costs stay the same regardless of sales volume (rent, salaries, insurance). Variable costs change with production or sales (materials, packaging, shipping, and payment processing fees).
How does contribution margin affect the break-even point?
A higher CM produces a lower break-even. With $6,000 fixed costs, a $30 CM gives a 200-unit break-even; a $20 CM raises it to 300 units.
Can a service business use the break-even formula?
Yes. The “unit” is a billable hour, project, or session. Service businesses usually have higher CMs and lower break-even points.
What is a good break-even point for a small business?
A good break-even point is one you can hit within your realistic sales capacity. Most small businesses aim to break even within 6 to 18 months.
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