What the break-even point tells you
The break-even point is the number of units you need to sell so that total revenue exactly covers total costs — no profit, no loss. Below it you're losing money; above it every extra sale is profit. It's one of the first numbers a small business should know before setting prices or committing to fixed expenses.
How it's calculated
First find the contribution margin: sale price minus the variable cost of one unit. That margin is what each sale contributes toward your fixed costs. Divide total fixed costs by the contribution margin and you get the units needed to break even. Multiply those units by the price and you get the break-even revenue.
Using it to make decisions
Raising your price or cutting variable costs increases the contribution margin, which lowers the number of units you must sell. Adding fixed costs — a bigger lease, a new hire — raises the break-even point, so it's worth checking whether the extra sales needed are realistic before you commit. If the sale price is at or below the variable cost, there's no break-even at all: every unit loses money.
Frequently asked questions
What counts as a fixed vs. variable cost?
Fixed costs stay the same regardless of how much you sell — rent, salaries, insurance. Variable costs rise with each unit produced — materials, packaging, per-unit shipping.
Why is the result rounded up?
Because you can't sell a fraction of a unit and still cover costs. The tool rounds up to the next whole unit so you reach or pass the break-even point rather than fall just short.