What Is Break-Even — and How Much Do I Need to Sell Before I Start Making Money?

Your break-even point is the level of sales where total revenue exactly equals total costs — no profit, no loss. Below it, the business is operating at a loss; above it, every additional sale contributes to genuine profit. Calculating it requires separating your costs into fixed and variable, then working out how much each sale genuinely contributes toward covering the fixed ones.

• Fixed costs. Costs that don't change with sales volume — rent, insurance, most salaried employment costs, and other overheads that stay the same whether you sell one unit or one thousand. Interest on business borrowing may also form part of this cost base, depending on how the analysis is prepared.

• Variable costs. Costs that rise and fall directly with sales volume — materials, direct labour on each job, packaging, delivery.

Some costs sit awkwardly between the two — a phone plan with a fixed base fee plus usage charges, for example. For break-even purposes, allocate these as reasonably as you can based on how your business actually operates.

Loan principal repayments are a different kind of item again — they're a financing cash flow, not an accounting expense, so they don't belong in a standard break-even calculation. This is worth understanding clearly, and is covered just below.

Contribution margin is what's left from each sale after variable costs are covered — the amount each sale genuinely contributes toward paying off your fixed costs, and eventually, profit.

Contribution margin = Selling price per unit − Variable cost per unit

1. Add up your total fixed costs for the period — monthly or annually.

2. Calculate your contribution margin per unit — selling price minus variable cost.

3. Divide fixed costs by the contribution margin per unit to get your break-even point in units.

A café has $8,500 in monthly fixed costs — rent, insurance, base staffing. Each coffee sells for $5, with $2 in variable cost (beans, milk, cup), giving a contribution margin of $3 per coffee.

$8,500 ÷ $3 = approximately 2,834 coffees a month to break even

Against a typical capacity of, say, 4,500 coffees a month, this tells the owner not just whether the business can break even, but how much genuine buffer exists above that point — useful information a simple profit figure alone doesn't reveal.

• It tests pricing decisions before you make them. A proposed price cut can be run through the formula to see exactly how much extra volume it would require to break even at the new margin.

• It reveals whether a break-even target is realistic. If the required volume exceeds your genuine capacity, that's telling you something important before you commit further.

• It needs recalculating as costs change. Rising wages, rent, or material costs shift your break-even point — a figure calculated a year ago may no longer reflect reality.

The break-even calculation above measures accounting profit — the point where revenue covers your genuine operating costs. It doesn't include loan principal repayments, capital expenditure, or other financing commitments, because those aren't accounting expenses in the way rent or materials are.

This matters in practice: a business with meaningful loan repayments or planned equipment purchases may need to generate considerably more cash than its accounting break-even point suggests, simply to meet those separate commitments. Break-even tells you when the business becomes profitable on paper — it doesn't tell you whether you'll have enough cash to cover everything you owe. That's a separate question, best worked through with a cash-flow forecast alongside your break-even figure, not instead of it.

• Do I know my current break-even point, in either units or revenue, for my main product or service?

• Have I recalculated it recently, or am I working from outdated cost assumptions?

• Does my break-even point sit comfortably below my genuine capacity, or uncomfortably close to it?

• Have I used this figure to test a recent pricing or cost decision, rather than just calculating it once and filing it away?

Business Queensland explains break-even analysis with additional worked context for small businesses.

business.qld.gov.au — Break-even and profit https://www.business.qld.gov.au/running-business/finance/essentials/break-even-profit

• you want your break-even point calculated properly across multiple products or services;

• you're testing a pricing change and want the break-even impact modelled first;

• your cost structure is complex enough that separating fixed from variable costs isn't straightforward; or

• you want break-even analysis built into your regular reporting, not just a one-off calculation.

→ What Is a Healthy Profit Margin for My Business?

→ Should I Increase My Prices — and How Do I Know?

→ How Do I Know Whether My Business Idea Is Financially Viable Before I Commit?

SKC Accounting | Knowledge Centre | Knowledge Guide 086

Last reviewed: August 2026

General information only. This guide does not take into account your individual circumstances and is not a substitute for professional accounting, taxation, legal or financial advice.