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What is the break-even point

Also known as: break-even, BEP, break-even analysis, break-even formula, how to calculate break-even

Definition

The break-even point is the sales level where revenue covers all costs, no profit and no loss: fixed costs ÷ what each sale leaves after variable costs.

Why it matters

Every new fixed cost has a price in sales.

Common mistakes

Dividing fixed costs by a margin percentage when you want a number of units. A percentage gives break-even revenue in shekels.

Related terms

Worked exampleIllustration

The break-even point of a small café

Average ticket

  • Price of the average ticket₪40
  • Variable cost: coffee, milk, cup, card fee-₪16
  • What each ticket leaves₪24

Fixed costs, every month

  • Rent, salaries, insurance, software₪36,000

Steps

  1. Fixed monthly costs: rent, salaries, insurance and software.₪36,000

  2. The average ticket is ₪40 and its variable cost ₪16, so each ticket leaves 40 minus 16.₪24

  3. Break-even: 36,000 ÷ 24 is 1,500 tickets, about 60 a day over 25 open days.1,500

  4. In shekels: each ticket leaves 24 ÷ 40, which is 60%, and 36,000 ÷ 0.6.₪60,000

  5. Margin of safety in a month of 1,800 tickets: (1,800 minus 1,500) ÷ 1,800.16.7%

  6. Decision: With a ₪12,000 salary for the owner added to fixed costs: 48,000 ÷ 24 is 2,000 tickets, 80 a day.2,000

60 customers a day keeps the café open. 80 pays its owner.

Illustration

Where the two lines cross

₪126,000⁨3,000 units⁩⁨1,500 units⁩
RevenueTotal costBreak-even point

The café breaks even at 1,500 tickets a month, ₪60,000 of sales, about 60 a day over 25 open days. Each ticket leaves ₪24 toward the fixed costs.

The café's revenue line against its total cost line. Left of the gold point every month loses money, right of it the café earns.

What the owner's salary costs, in coffee

The owner's ₪12,000 a month, drawn in coffee: the daily target moves from 60 to 80 tickets.
  • 60 tickets a day keep the café open
  • 20 more a day pay the owner's ₪12,000 salary

₪12,000 ÷ ₪24 per ticket = 500 more tickets a month.

The owner's ₪12,000 a month, drawn in coffee: the daily target moves from 60 to 80 tickets.

Definition

The break-even point is the volume of sales at which revenue equals total costs, so the business neither earns nor loses. In units, it is the fixed costs divided by the contribution per unit: the price minus the variable cost of one unit, including variable selling costs such as commissions, card fees and delivery. In shekels, it is the fixed costs divided by the contribution margin ratio, the share of each shekel of sales left after variable costs. The margin of safety measures how far actual or planned sales are above break-even, in units, in shekels or as a percentage of current sales. For a sole trader, the owner's own pay is not a booked expense, so a break-even without it shows no loss while the owner earns nothing. The monthly break-even is also different from recovering an initial investment, which is a payback question. The industrial engineering professor Walter Rautenstrauch of Columbia University is credited with the term and the break-even chart, set out in his 1930 book.

Why it matters

Dividing its monthly cost by the contribution per sale shows how many extra sales it needs before it pays for itself, before you sign. Raising the price usually lowers the break-even point more than cutting the variable cost by the same percentage, because the price is the larger number, so the same percentage adds more to what every sale leaves. Break-even is the floor the business must clear every month, not the goal.

Directly related: Overhead, Gross margin, Runway.

Formula

Break-Even Quantity = Fixed Costs / (Revenue Per Unit - Variable Cost Per Unit)

Improvement tips

  • Sort every cost into fixed and variable first, and count commissions, card fees and delivery as variable costs.
  • Before adding a fixed cost, divide it by what one sale leaves, to see how many extra sales it needs each month.
  • Calculate a second break-even that includes your own pay, so no loss also means you earned a salary.
  • Track the margin of safety every month, to see how close a slow month brings you to the line.
  • Test a price rise against a cut of the same percentage in the variable cost: the price rise adds more to what each sale leaves, because the price is the larger number.

Common mistakes

  • Leaving variable selling costs such as card fees, commissions and delivery out of the cost per unit.
  • Treating a break-even without the owner's pay as no loss, while the owner earns nothing.
  • Treating break-even as the goal rather than the floor.
  • Not recalculating when fixed costs grow.

Related terms

FinanceBeginner

Overhead

Overhead is the indirect cost of running a business, like rent, bookkeeping, insurance and admin salaries, that cannot be traced to one product or customer.

FinanceBeginner

Gross margin

Gross margin is the share of revenue left after the cost of goods sold: (revenue - COGS) ÷ revenue × 100. At 60%, 60 agorot of each shekel remain.

FinanceBeginner

Runway

Runway is the number of months a business can keep going on the cash it has today, at its current pace of spending and income: cash divided by monthly net burn.

FinanceBeginner

Revenue

Revenue is everything a business sold in a period, before any costs and without the VAT on the invoice. It is the P&L's top line, not profit and not cash.

FinanceBeginner

ROI

ROI (return on investment) is a percentage showing what an investment earned net of its cost: the gain from it minus its cost, divided by the cost, times 100.

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Quick check

A café has fixed costs of ₪36,000 a month, an average ticket of ₪40 and a variable cost of ₪16 per ticket. How many tickets a month does it need to break even?

Choose an answer

Frequently asked questions

Do I need to know my break-even point before starting a business?
Yes. It turns a plan into a daily target, how many customers or sales you need, and shows early whether that target is realistic in your location and market.
When does the break-even point first become relevant for a new business?
As soon as you set a price and know your rent and other fixed costs. That is the moment to check whether the numbers can meet.
How do I plan the break-even point for a new business?
List the expected fixed monthly costs, then work out what one sale leaves after its variable costs, including card fees, commissions and delivery. Fixed costs divided by that amount is the number of sales you need each month.
Should breaking even be the main goal of a new business?
It is the first milestone, not the goal. At break-even the business pays its costs and nothing more, and every sale above it is what makes profit.
Why does the break-even point matter for a business that is already running?
It is the minimum you must sell every month. Knowing it, and how far above it you are, tells you how much a slow month can hurt and how much room you have for a new cost.
What goes wrong when a business ignores its break-even point?
It adds fixed costs, a bigger place, another employee, without knowing how many more sales each one needs, and the line rises above what it actually sells.
How do I calculate my break-even point quickly?
Divide the monthly fixed costs by what one sale leaves after its variable costs, the price minus the variable cost per unit. Do not divide by a margin percentage if you want units: that gives the break-even in shekels.
How can a business lower its break-even point?
Raise prices, lower the variable cost per sale, or cut fixed costs. A price rise of a few percent usually lowers it more than cutting the variable cost by the same percentage, because the price is the larger number.
What does break-even point mean in plain words?
The amount you must sell so that the money coming in exactly pays all the costs. Below it you lose, above it you earn.
What is the margin of safety?
How far your sales are above break-even. A café that sells 1,800 tickets with a break-even of 1,500 has a margin of safety of about 16.7%: sales can fall that much before it starts to lose.
Do I need an accountant to calculate my break-even point?
No, one division in a spreadsheet is enough. An accountant or a business consultant helps when it is unclear which costs are fixed and which change with sales.
Is the break-even point the same as getting my investment back?
No. The monthly break-even is where each month stops losing. Getting back the money you invested at the start is the payback question, and it takes the profit of the months after break-even.

Sources: AccountingCoach, break-even point and margin of safety (accountingcoach.com), checked September 2026, Wikipedia, Break-even point, history section (Walter Rautenstrauch, The Successful Control of Profits, 1930), checked September 2026

Last reviewed: 2026-09-23

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