Calculate your business break-even point in units and dollars. See fixed costs, variable costs, contribution margin, and how long until your business is profitable. Free 2026 tool.
Break-Even Analysis for Small Business Owners
Break-even is the minimum revenue level where total costs equal total revenue — zero profit, zero loss. Every dollar above break-even generates profit at your contribution margin rate. Break-even analysis helps you make decisions: Is this business viable? How many clients do I need? What happens if I raise prices 10%?
Price Sensitivity: The Break-Even Impact of Price Changes
Raising prices increases your contribution margin and lowers your break-even point. Lowering prices does the opposite. On a business with $10,000/month fixed costs and 40% contribution margin: break-even is $25,000 revenue. Raise prices 10% (increasing contribution margin to 45%): break-even drops to $22,222. That 10% price increase means you need 11% less revenue to break even — a significant operational buffer.
SBA Guidelines on Business Viability
The Small Business Administration recommends running break-even analysis quarterly and building at least 3–6 months of fixed costs as a cash reserve before launching. For mortgage refinance break-even, use our dedicated Refinance Break-Even Calculator. Most small businesses that fail do so within 2 years, often due to underestimating fixed costs or overestimating early revenue. The break-even calculation above is the first financial model every new business should build.
Frequently Asked Questions
Break-even units = fixed costs ÷ (selling price per unit − variable cost per unit). The denominator is your contribution margin per unit. Example: $10,000/month fixed costs, $50 selling price, $20 variable cost per unit. Contribution margin = $30/unit. Break-even = $10,000 ÷ $30 = 334 units/month. In dollars: 334 × $50 = $16,700/month in revenue to break even. Below that, you're losing money. Above it, every $30 goes straight to profit.
Fixed costs don't change with sales volume: rent, salaries, insurance, software subscriptions, loan payments, depreciation, marketing minimums. Variable costs scale directly with units sold or revenue: raw materials, cost of goods, shipping, credit card processing fees (typically 2.5%–3.5%), sales commissions. Some costs are semi-variable: utilities (base fee + usage), labor with overtime. For break-even analysis, separate them clearly — misclassifying variable costs as fixed will make your break-even look more favorable than it really is.
Contribution margin = selling price − variable cost per unit. It tells you how much each sale contributes toward covering fixed costs and then profit. A 60% contribution margin means $0.60 of every dollar in revenue covers fixed costs and profit. Low contribution margin businesses (grocery, gas stations) need high volume. High contribution margin businesses (software, consulting) can be profitable at lower volume. If your contribution margin is below your fixed cost percentage of revenue, you can't break even at any volume.
Service businesses often work in revenue rather than units. Break-even revenue = fixed costs ÷ contribution margin ratio. If you have $8,000/month in fixed overhead and your gross margin (after direct labor and materials) is 40%, break-even = $8,000 ÷ 0.40 = $20,000/month in revenue. Above $20,000, you're profitable. Below, you're subsidizing clients. Freelancers and consultants: add your desired salary to fixed costs before running the break-even — otherwise you're calculating break-even for the business, not for you.
Profitability and cash flow are different. You can be profitable on paper (revenue exceeds expenses) but cash-negative if: customers pay late (accounts receivable), you're carrying inventory that hasn't sold, you're making loan principal payments (which don't appear on profit/loss statements), or you're investing in equipment. Break-even analysis is about profitability. Cash flow analysis accounts for when money actually moves. A business can be profitable and cash-insolvent simultaneously — this is a common cause of small business failure even after break-even is achieved.
