How to Calculate Your Break-Even Point (with a Worked Example)
Business guide · Updated October 2026
Your break-even point is the amount you have to sell before the business stops costing you money. Below it, every month ends with a loss. Above it, you are earning. It is one division, but the result depends entirely on what you put into it, and most first attempts come out too low. This guide works through a coffee cart from the first cup to a daily target, then looks at what moves the number and where it tends to mislead. To run your own figures as you read, open the break-even calculator.
What break-even tells you, and what it does not
It answers one question: at this price and these costs, how much do I need to sell? That makes it a test of a plan. If the answer is 900 cups a month and the pitch sees 60 people a day, you have learned something important before spending anything. It does not tell you whether you will sell that many, and it says nothing about cash in the bank. Treat it as the bar you have to clear.
Sort your costs into two piles
Everything rests on separating costs that stay the same however much you sell from costs that rise with each sale. For the coffee cart, per month:
- Fixed: pitch fees $600, machine lease $180, insurance $60, card reader and software $40, the owner's pay $2,000. Total $2,880.
- Variable, per cup: beans, milk, cup and lid. Total $1.30.
The test for each cost is simple: if you sold nothing next month, would you still pay it? If yes, it is fixed.
The formula, worked through
A coffee sells for $4.50 and costs $1.30 to make, so each cup leaves $3.20 to put toward the fixed costs. That $3.20 is the contribution per cup.
- $4.50 − $1.30 = $3.20 contribution
- $2,880 ÷ $3.20 = 900 cups a month
The first 900 cups pay for the business. Cup 901 is the first one that earns anything, and from there each cup adds $3.20 of profit.
Turn it into a daily target
A monthly figure is hard to act on. Divide by the days you trade. The cart is out 20 days a month, so it needs 45 cups a day. That is a number you can check at lunchtime. If a new pitch can only deliver 30 on a good day, no amount of effort will make it work at this price.
Break-even in dollars
Sometimes units are awkward and revenue is easier. First find what share of each sale is contribution, then divide fixed costs by it.
- Contribution share: $3.20 ÷ $4.50 = 71.1%
- Break-even revenue: $2,880 ÷ 0.711 = $4,050 a month
It agrees with the unit method, as it should: 900 cups at $4.50 is $4,050. That contribution share is the gross margin on a cup; the profit margin calculator will find it for any product.
Add the profit you actually want
Breaking even is survival. To plan for a profit, add it to the fixed costs before dividing. For $800 a month on top of the owner's pay:
- ($2,880 + $800) ÷ $3.20 = 1,150 cups, or about 58 a day
When you sell more than one thing
The cart also sells pastries at $3.50 that cost $2.10, a contribution of $1.40. If four in five sales are coffee, blend the two:
- 0.8 × $3.20 + 0.2 × $1.40 = $2.84 average contribution
- $2,880 ÷ $2.84 = 1,015 items, roughly 812 coffees and 203 pastries
More items are needed than before, because pastries contribute less. The break-even point depends on the mix as well as the volume, which is a good reason to know which of your products carries the business.
What moves the number most
Change one input at a time and watch the monthly target:
| Change | Cups to break even |
|---|---|
| As it stands | 900 |
| Price up 50 cents, to $5.00 | 779 |
| Beans and milk up 20 cents a cup | 960 |
| Pitch fees up $150 a month | 947 |
| Hire weekend help at $700 a month | 1,119 |
Price is the strongest lever by a distance: fifty cents removes 121 cups from the target. If you are weighing a rise, the guide to raising your prices covers how to choose the number and what to tell customers. Working the other way, from a cost to a price, is a job for the markup calculator.
Three ways the figure flatters you
Leaving out your own pay. Take the $2,000 out of the fixed costs and the cart breaks even at 275 cups. That is the point where it stops losing money while you work for nothing.
Forgetting fees charged per sale. If card fees take 12 cents a cup, the contribution is $3.08 and break-even rises to 936. Fees that scale with sales belong in the variable cost.
Using the menu price when customers pay less. A loyalty card that makes every tenth coffee free cuts the average price to $4.05. Contribution drops to $2.75 and break-even jumps to 1,048 cups, 148 more than planned. Any regular discount works the same way; the seller section of the discount calculator shows what one costs per sale.
After break-even: safety margin and start-up costs
Two more numbers are worth having. The first is your margin of safety: how far sales could fall before you were back at break-even. Selling 1,100 cups against a break-even of 900 gives (1,100 − 900) ÷ 1,100 = 18%. A bad month can absorb an 18% drop.
The second is how long the start-up money takes to come back. Those 200 extra cups earn 200 × $3.20 = $640 a month. If fitting out the cart cost $3,600, it pays for itself in $3,600 ÷ $640, a little under six months. That is a separate question from break-even, and it is the one to ask before you buy equipment.
Frequently asked questions
Is the break-even point the same as the payback period?
No, and mixing them up is common. Break-even is the level of sales in a period where income covers that period's costs. Payback is how long it takes for the surplus above break-even to return money you spent up front, such as equipment or a fit-out. A business can be past break-even every month and still be a year away from paying back its start-up costs.
Some of my costs are neither fixed nor variable. Where do they go?
Split them if you can. Electricity might have a standing charge that is fixed and a usage part that rises with output. Part-time help that you only call in on busy days behaves like a variable cost. If you cannot split a cost sensibly, treat it as fixed: that gives a higher break-even point, which is the safer mistake to make.
Can a business be past break-even and still run out of cash?
Yes. Break-even compares income and costs for a period; it ignores when the money actually moves. If you pay for a quarter's stock up front, or customers pay you a month late, you can be profitable on paper while the bank balance heads toward zero. Check cash separately, especially while you are growing.
How often should I recalculate it?
Whenever one of the three inputs changes: a supplier's price, a rent or fee, or your own selling price. Beyond that, a quick check every three months is enough. It takes a few minutes and stops you working to a target that went out of date two price rises ago.
Does break-even work if I sell a service and have no units?
It does. Choose whatever you bill by as the unit: an hour, a job, a session, a booking. The price is what you charge for one, and the variable cost is whatever that one costs you to deliver, such as travel or materials. If your jobs vary too much for that, use the revenue method and work in dollars instead.