Break-even Point Explained

What is the break-even point?

The break-even point is the level of sales at which your total revenue equals your total costs. Below this point you operate at a loss; above it you start to earn a profit.

Simple formula

Break-even Sales = Fixed Costs ÷ Gross Margin %

Fixed costs are expenses you pay regardless of sales volume — rent, salaries, insurance, software subscriptions, accounting fees.

Why it matters

• Sets a clear minimum sales target each month.
• Helps decide if a price change or new cost is sustainable.
• Shows the risk of taking on new fixed expenses.

Practical example

A small café has fixed costs of €4,000 per month and a gross margin of 50%. Break-even sales = 4,000 ÷ 0.50 = €8,000 per month. Below €8,000 in sales, the café loses money; above it, each extra euro of sales contributes 50 cents to profit.

Practical tips

• Recalculate when rent, salaries, or supplier prices change.
• Compare actual sales to break-even sales every month.
• If you are far below break-even, focus on margin and fixed costs before scaling.