Break-even point: when does your project start making money?

The break-even point is the sales volume at which your revenue covers all your costs. Below it you lose money; above it you start to profit.

The formula

Break-even units = Fixed costs ÷ (Selling price − Variable cost per unit)

The difference between the selling price and the variable cost is called the contribution margin — what each unit contributes towards covering fixed costs.

Example

A café has monthly fixed costs of SAR 30,000 (rent, salaries, electricity), sells a cup for SAR 50 and its variable cost is SAR 30. The contribution margin is SAR 20, so it needs to sell 1,500 cups a month — about 50 a day — to break even.

How can you use it?

• Before opening a project or branch: is the required sales volume realistic?
• When changing prices: how many extra units do you need if you cut the price?
• When adding a fixed expense: how much does the break-even point rise?

Try the break-even calculator with your own numbers.