Every business has a point where it stops losing money and starts making it. Break-even analysis tells you exactly where that point is — in units sold, in revenue, or in time. It's the first calculation any serious business owner should run, and most never do it properly.
The reason break-even matters isn't just knowing the number — it's understanding which levers move it. Price, variable costs, and fixed costs all affect your break-even differently, and knowing the sensitivity tells you where to focus.
The Break-Even Formula
Break-even has two versions: units (how many you need to sell) and revenue (how much you need to take in). Both start from contribution margin.
Fixed vs Variable Costs — Getting the Classification Right
Most founders miscategorise costs, which makes their break-even calculation wrong. Here's a practical reference for common business costs.
Note: some costs are semi-variable. A part-time employee whose hours scale with demand, or a cloud server that scales with traffic, sits between fixed and variable. For simplicity in break-even analysis, classify semi-variable costs by their dominant behaviour — if they mostly don't change, treat as fixed.
Worked Example: Pressure Washing Business
Let's apply break-even analysis to a concrete business: a solo pressure washing operator who just bought their first rig.
Six jobs per month is a very achievable number — most successful pressure washing operators do 4–8 per week. This means the business can be profitable within the first month, even at modest volume. That's the real value of break-even analysis: it tells you whether the business is viable at realistic volumes before you invest.
▸ CALCULATE_BREAK_EVEN
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Enter your fixed costs, variable costs per unit, and selling price. Get your break-even in units and revenue — and see how price changes affect it.
Calculate Break-Even →Break-Even for Different Business Models
Break-even looks very different depending on how your business makes money. Here's a comparison across common models.
| Model | Fixed Cost Profile | Variable Cost | CM Ratio | Break-Even Time | Key Insight |
|---|---|---|---|---|---|
| SaaS | Medium (team, infra) | Very low (~5–15%) | 85–95% | 6–18 months | Scale leverages high CM |
| Service biz | Low (tools, insurance) | Medium (labour/fuel) | 50–80% | 1–3 months | Low fixed costs = fast BE |
| E-commerce | Low-medium | High (COGS, ship) | 20–50% | 3–12 months | Margin pressure is key risk |
| Restaurant | Very high (rent, staff) | Medium (food cost 25–35%) | 65–75% | 12–36 months | High fixed costs make BE brutal |
| Consulting | Very low | Low (your time) | 80–95% | 1 month | Almost all revenue = profit |
| Physical product | High (tooling, inventory) | High (COGS) | 20–50% | 12–24 months | Volume needed to cover setup |
Sensitivity Table: How Price Changes Affect Break-Even
Continuing the pressure washing example (£950/month fixed costs, £20/job variable cost), here's how different pricing changes the break-even point.
| Job Price | Contribution Margin | Break-Even Jobs/Mo | Break-Even Revenue | Monthly Profit @15 jobs |
|---|---|---|---|---|
| £120 | £100 (83%) | 9.5 → 10 | £1,140 | £550 |
| £150 | £130 (87%) | 7.3 → 8 | £1,093 | £1,000 |
| £180 ✓ | £160 (89%) | 5.9 → 6 | £1,068 | £1,450 |
| £220 | £200 (91%) | 4.75 → 5 | £1,044 | £2,050 |
| £280 | £260 (93%) | 3.65 → 4 | £1,022 | £2,950 |
This table makes the case for premium pricing visually. Moving from £180 to £220 per job (+22% price increase) halves the number of jobs needed to break even, and increases monthly profit at 15 jobs from £1,450 to £2,050 — a 41% profit increase from a single pricing decision. Breaking even sooner also means you start compounding profit earlier.
Frequently Asked Questions
What is the break-even formula?
Break-even point (in units) = Fixed Costs ÷ Contribution Margin per Unit. Contribution margin = Selling price − Variable cost per unit. Break-even in revenue = Fixed Costs ÷ Contribution Margin Ratio (where CM ratio = Contribution Margin ÷ Selling Price).
What is contribution margin?
Contribution margin is what's left from each sale after paying variable costs. It's the portion of each sale that 'contributes' toward covering fixed costs and eventually profit. A product selling for £100 with £40 variable cost has a £60 contribution margin (60% CM ratio). Every unit sold contributes £60 toward your fixed costs.
What is the difference between fixed and variable costs?
Fixed costs stay constant regardless of how much you sell: rent, salaries, software subscriptions, insurance. Variable costs scale directly with sales volume: materials, payment processing fees, shipping, direct labour on a per-job basis. The distinction matters for break-even because only fixed costs create the 'mountain' you need to climb before becoming profitable.
How does price affect break-even point?
Price changes have a multiplied effect on break-even because they change contribution margin directly. A 10% price increase on a product with 40% CM ratio doesn't just add 10% revenue — it increases contribution margin by 25% (from 40% to 50%), which cuts your break-even point significantly. This is why pricing is usually a more powerful lever than cost-cutting.
▸ CALCULATE_BREAK_EVEN
Find your break-even point in seconds
Enter your fixed costs, variable costs per unit, and selling price. Get your break-even in units and revenue — and see how price changes affect it.
Calculate Break-Even →