How many sales keep the lights on?
Breakeven is where money coming in covers money going out. Enter your fixed costs and what one sale brings in and costs you.
The math
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How the breakeven works
Breakeven is fixed costs divided by contribution — the price of a sale minus its variable cost. Every sale past that point adds its full contribution straight to profit.
What is a breakeven point and how do you calculate it?
Your breakeven point is the level of sales where profit is exactly zero. To find it, split your costs in two. Fixed costs are what you pay whether or not the phone rings, such as rent, insurance, software and salaried payroll. Variable costs rise with each sale: materials, subcontractors, processing fees, hourly labor on the job. Subtract the variable cost from the price to get the contribution per sale, then divide your fixed costs by that contribution, and the answer is the number of sales you need.
What is a good margin of safety for a small business?
Margin of safety is the gap between what you sell now and what you need to break even, expressed as a share of current sales. A thin margin of safety means one slow month turns into a loss; a wide one gives you room to lose a customer or absorb a surprise. There is no single right number, because it depends on how steady your sales are and how quickly you could cut your cost base if you had to. What matters more is knowing the figure and watching which way it moves. If it shrinks while revenue grows, your fixed costs are growing faster than your sales.
Why is my breakeven point so high?
A high breakeven comes from one of two places: fixed costs that are large relative to your size, or contribution per sale that is too thin. Look at contribution first, because it is the faster lever, and a modest price increase or a cheaper input raises it on every future sale. Then read your fixed costs line by line and ask which ones you signed up for during a busier stretch. Software seats, vehicle payments and space you have outgrown or not yet filled are the usual candidates. Cutting a fixed cost lowers breakeven permanently, while one good month only hides it.
Questions people ask
What's the difference between fixed and variable costs?
Fixed costs don't change with how much you sell in a given month: rent, insurance, software subscriptions, salaried staff. Variable costs exist only because a sale happened, such as materials, subcontractor invoices, card fees and hourly labor on the job. Some bills sit in between, like a phone plan with overage charges; put the base amount in fixed costs and the usage part in variable.
Should my own pay go in fixed costs?
If you take a regular draw or salary and would keep taking it through a slow month, include it in fixed costs. That gives you a breakeven point that covers paying yourself, rather than one that only keeps the doors open. If you pay yourself whatever is left over instead, leave it out and read the profit line as the amount available to you.
How do I use this if I sell several different things?
Use the average price and average variable cost across your usual mix, and read the result as a number of average sales. That is close enough for planning while your mix stays roughly steady. If one line is far thinner than the others, check it on its own with a gross margin calculation before you lean on the blended figure.
What does contribution mean?
Contribution is what remains of a sale after its variable costs, and it is the money available to cover fixed costs. Below breakeven it is filling the hole; above breakeven it is profit. Raising contribution per sale lowers your breakeven point faster than selling more does.
Other free tools
Pricing and inflation
Check what you charge against inflation since you last raised it, and against the margin your costs require.
Gross margin by product
List up to five products or services to see your blended gross margin and where the profit really comes from.
Cash runway
Find out how many months your cash lasts at today's pace, and the date the account would reach zero.
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