Your break-even point is the level of sales where the money coming in exactly covers the money going out — not a penny of profit yet, but no loss either. It's one of the most useful numbers a small business owner can know, and one of the least often calculated.
How break-even actually works
Every sale you make has two parts. Part of the price covers the direct cost of that sale (materials, delivery, card fees) and whatever's left over — the contribution — goes towards your fixed costs: rent, software, insurance, your own wage. Once enough sales have stacked up enough contribution to cover all your fixed costs for the month, you've broken even. Everything after that is profit.
So the formula is simple: fixed costs, divided by the contribution per sale. If your fixed costs are £3,000 a month and each sale contributes £30 after direct costs, you need 100 sales a month to break even.
If you don't know your break-even point, you don't know whether a quiet month is a blip or a crisis. It's the line between 'fine' and 'losing money' — and most owners can't tell you where it is.
Why it's worth knowing
Break-even turns vague worry into a specific target. It tells you the minimum you need to survive, so you know instantly whether you're above or below the line. It shows you how a price rise moves the goalposts — put your price up and each sale contributes more, so you need fewer of them. And it's the reality check on any new cost: take on a £500-a-month expense and you can see exactly how many extra sales it needs to pay for itself.
Common questions
What's the difference between fixed and variable costs?
Fixed costs stay roughly the same whether you sell one thing or a thousand — rent, insurance, software, salaries. Variable (or direct) costs rise with each sale — materials, delivery, payment fees. Break-even is about how much each sale contributes towards covering the fixed lot.
Should I include my own wage in fixed costs?
Yes — if you want a break-even that reflects a sustainable business rather than one that only survives because you're working for free. Put a realistic figure for your own pay into fixed costs. A business that only 'breaks even' by not paying its owner isn't really breaking even.
My contribution per sale is negative — what does that mean?
It means you're selling at or below what each sale costs you to deliver, so more sales make things worse, not better. Before anything else, either raise your price or cut your direct cost per sale until every sale makes a positive contribution.