Break-Even Analysis for a Small Business

Updated 2026-08-31 · ProfitKit

Your break-even point is fixed costs divided by contribution per unit, where contribution is price minus variable cost per unit. It is the single most useful number a new business can calculate, because it converts a vague worry — "am I going to be okay?" — into a countable target.

Splitting your costs correctly

The whole calculation depends on sorting costs into two buckets, and the test is one question: does selling one more unit increase this cost?

• Fixed (no): subscriptions, store fees, rent, your own wage, tools.
• Variable (yes): materials, packaging, postage, percentage selling fees, payment processing.

Percentage fees confuse people because they are percentages, but they are variable — convert them to a per-unit amount at your normal price and include them.

Worked example

$600 fixed costs a month, $24 price, $9.50 variable cost per unit:

• Contribution: $14.50 per unit
• Break-even: $600 ÷ $14.50 = 42 units, or $1,008 of sales
• Unit 43 onward contributes $14.50 straight to profit

That last line is why break-even matters so much: profit does not grow gradually from the first sale, it arrives all at once after the fixed costs are covered.

Comparing the three levers honestly

Price is the strongest lever, and by a clear margin. It is also the one most small sellers refuse to touch.

Two things to do with the result

Set it as a visible weekly target. 42 units a month is 10 or 11 a week — a target you can act on, unlike "increase sales".

Include your own wage in fixed costs. If you leave yourself out, your break-even is fictional: you will "break even" while earning nothing, which is not a business but a job you are paying for.

Do the calculation