Break-even point
Break-even calculator. How many before the month stops costing you money?
Your break-even point is where takings exactly cover what it costs you to be open. Below it the month loses money; above it every further sale is profit. Enter your fixed costs and what you make on a sale, and this works out how many of them it takes - with GST taken off first, because the GST in your till is not your money.
Rent, wages, insurance, subscriptions - what you pay whether you sell anything or not.
The cost that only happens because you made the sale.
Break even at
3,334
sales a month
Which is takings of
$18,333
a month including GST, $16,667 ex
Every sale puts $3.60 towards the $12,000 of fixed costs, so it takes 3,334 of them before the month stops costing you money. Everything after that is profit, at $3.60 a time.
The break-even point formula
There are two versions of it and they answer slightly different questions. Both start from the same idea: work out what one sale contributes towards the costs you pay whether you trade or not, then see how many of those it takes.
In units
Fixed costs ÷ (sell price − variable cost) = sales to break even
The bracket is your contribution per unit, and it is the number that matters most. It is what is left of one sale after the costs that only happened because you made it.
In dollars
Fixed costs ÷ gross margin = takings to break even
Use this one if you bill projects or hours rather than selling units. At a 60% margin every dollar of sales leaves 60 cents towards fixed costs, so $12,000 of fixed costs needs $20,000 of sales, ex GST.
Worked through, on a cafe
| Fixed costs a month | $12,000 | Rent, permanent wages, insurance, subscriptions |
| Sell price | $5.50 | What is on the board, including GST |
| Sell price, ex GST | $5.00 | 50c of that $5.50 belongs to the ATO |
| Cost of the cup | $1.40 | Beans, milk, cup, lid |
| Contribution | $3.60 | $5.00 − $1.40 |
| Contribution margin | 72% | $3.60 ÷ $5.00 |
| Break-even | 3,334 cups | $12,000 ÷ $3.60 |
| Per week | 770 cups | About 129 a day, trading six |
The GST line is where most break-even sums go wrong. On the $5.50 board price the contribution looks like $4.10 and the answer looks like 2,927 cups. It is 3,334. That gap is four hundred coffees a month, and it is the difference between a plan that works and one that was never going to.
Fixed or variable? The bit that decides the answer
Break-even is only as good as this split, and it is where most people put the number in the wrong box. The test is simple: if you sold nothing at all this month, would you still pay it?
Fixed - you pay it either way
- Rent and outgoings
- Permanent wages and their on-costs
- Insurance
- Accounting, software, subscriptions
- Loan and lease repayments
- Utilities standing charges
Variable - only because you sold something
- Stock, ingredients, materials
- Packaging and freight
- Payment and card fees
- Subcontractors on a job
- Sales commission
- Usage-based utilities
Some costs are honestly both - a casual roster that scales with trade is the usual example. Split it rather than argue about it: the part of the roster you would run on a dead Tuesday is fixed, the rest is variable. And put payment fees in the variable column. On a 6% buy-now-pay-later fee they are not a rounding error, and leaving them out is the second most common way this sum comes out optimistic.
Questions people ask
What is the break-even point?
The point where what you sell exactly covers what it costs you to be open. Below it the month loses money, above it every further sale is profit. It is not the same as being profitable - it is the line you cross before profit starts, and knowing where it sits is what turns a quiet week from a worry into a number.
What is the break-even point formula?
Break-even units equal fixed costs divided by the contribution per unit, where contribution is the sell price less the costs that only happen because you made the sale. In dollars it is fixed costs divided by the contribution margin. A cafe with $12,000 of monthly fixed costs, selling a $5.50 coffee that costs $1.40 to make, contributes $3.60 a cup on the ex-GST price of $5.00, so it needs 3,334 cups a month.
How do I calculate break-even in dollars rather than units?
Divide fixed costs by your gross margin expressed as a decimal. At a 60% margin, every dollar of sales leaves 60 cents towards fixed costs, so $12,000 of fixed costs needs $20,000 of ex-GST sales. This is the version to use if you bill projects or hours rather than selling units, because there is no unit to count.
Do I use GST inclusive or exclusive figures for break-even?
Exclusive, if you are registered. The GST you collect is not takings, it is money you are holding for the ATO, and the GST you pay on stock and expenses comes back to you. Running break-even on GST-inclusive figures overstates your contribution by about a tenth, in the direction that flatters. The calculator above takes GST off before it does anything and shows you the inclusive takings figure separately, because that is the number you will actually see in the till.
What counts as a fixed cost?
Anything you pay whether or not you sell a thing: rent and outgoings, permanent wages and their on-costs, insurance, accounting and software subscriptions, loan repayments, utilities standing charges. Variable costs are the ones that only happen because a sale did - stock, ingredients, packaging, freight, payment fees, subcontractors on a job. Some costs are genuinely both, like a casual roster that scales with trade, and the usual approach is to split them rather than argue about them.
What is a margin of safety?
How far your current sales sit above break-even, as a percentage. If you break even at 3,300 coffees and sell 5,000, your margin of safety is 34%: takings could fall by a third before the month starts losing money. It is the more useful of the two numbers, because break-even on its own says nothing about how much room you have.
Why does my break-even point keep moving?
Because two of the three inputs move constantly. A supplier price rise cuts your contribution per sale and pushes break-even up without anything else changing; so does a payment fee, a discount, or a wage increase that lands in fixed costs. It is worth recalculating whenever a supplier price changes rather than once a year, which is the argument for having the number in front of you every month rather than in a spreadsheet somebody built in 2023.
What if every sale loses money?
Then there is no volume that fixes it and more sales make it worse. If the contribution per unit is negative - the price is below the cost of making the sale, once fees are counted - the price or the unit cost has to move before break-even means anything. The calculator says so rather than returning a very large number, because a very large number reads like a target.
Break-even moves the moment a supplier price does, which is the argument for having it in front of you every month rather than in a spreadsheet built two years ago. LINK Books set the reporting up so it is there without you working it out, and LINK Advisors read it with you. If you are here because the contribution per sale looks thin, the margin calculator is the other half of this question, and it will tell you what your margin looks like against the ATO benchmarks for your industry.
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