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Break-even calculator

The usual answer is a number of units, which is correct and hard to act on. This one also tells you which day of the month your fixed costs are covered, and how much could go wrong before they are not.

Your numbers

What you pay whether you sell anything or not: rent, salaries, insurance.
Per unit, per job, per month: whatever you sell one of.
What is left after the direct cost of delivering it.
Optional, and it is what turns the target into a position.

Where you break even

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Add your costs, a price and a margin

What gets asked about this number

Usually by a bank, a partner, or yourself at two in the morning. Nearly all of them are really about the same thing: the number on the screen is an average month, and averages are paid in real ones.

  1. Which of those fixed costs are actually fixed?

    Rent and salaries are. Contractors, commission, delivery, payment fees and most software are not: they move with volume and belong on the other side of the calculation. A cost filed as fixed when it is not moves break-even in the flattering direction.

  2. Is your own pay in the fixed costs?

    A break-even that excludes the founder's living costs is a break-even for the business and not for the person running it. The two figures are often far apart, and only one of them decides whether this is sustainable.

  3. Does every month look like this one?

    Break-even is computed on an average month and paid in real ones. A business that clears it comfortably across a year can still have three months that do not, and those are the months that need cash rather than arithmetic.

  4. Break-even is about profit. When does the money actually arrive?

    A profitable month with sixty-day payment terms still empties the bank. Plenty of businesses have gone under above their break-even point, and the gap between the two is timing rather than performance.

How break-even is calculated, and where it misleads

Fixed costs divided by what one sale contributes. A sale at 100 with a 40% margin contributes 40, so 12,000 of fixed costs needs 300 sales. That part is simple and every calculator agrees on it.

What makes it usable is the next step. If a normal month brings 500 sales, you pass 300 about three fifths of the way through, on day 18. The first eighteen days pay the rent; the last twelve are yours. That is the same figure said in a way you can plan around, and it is why this page leads with it.

The classification problem

The most common error is not arithmetic, it is sorting. Fixed costs are the ones you pay whether or not you sell anything: rent, salaries, insurance, the accountant. Variable costs move with volume: materials, delivery, payment processing, commission, contractors paid by the job, and most usage-priced software.

Put a variable cost in the fixed column and break-even looks further away than it is. Put a fixed cost in the variable column and it looks closer. The second error is the dangerous one, and it is the more common, because it usually happens by leaving something out entirely.

The founder's salary

A break-even that does not include what you need to live on is a break-even for the business rather than for the person running it. Both numbers are real and they are often far apart. Only one of them answers whether this is something you can keep doing.

Break-even is profit, and profit is not cash

A month can clear break-even comfortably and still empty the bank account, because break-even says nothing about when the money arrives. Sixty-day payment terms, a large customer who pays late, stock bought before it sells: each one puts the cash behind the profit. More businesses fail above their break-even point than below it, and the difference is almost always timing.

What this does not do

One price and one margin, so a business with several products is entering an average and getting an average back. No seasonality: an even month is assumed, which is what makes the day figure possible and also what makes it a simplification. And no cash timing, for the reason above.

Terms on this page

Fixed costs
What you pay whether or not you sell anything. Rent, salaries, insurance, subscriptions that do not scale.
Contribution
What one sale leaves after its own direct costs. This is what pays down the fixed costs.
Break-even point
The sales at which contribution exactly covers fixed costs. Below it you are making a loss; above it, profit.
Margin of safety
How far sales could fall from where they are before reaching break-even, as a percentage.

A number is only as good as your answer about it.

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