Break Even Point: Formula, Examples and How to Calculate

Find your break even point with the SBA formula, a coffee cart example and a chart. See how price, costs and card fees change the sales you need each month.

Entrepreneurship

Oct 27, 2026

Coffee cart owner in a green apron writes her daily drink count in a small notebook on the cart counter

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Break-even point is the sales level where total revenue equals total costs, so you have zero profit and zero loss.
Formula: fixed costs divided by price minus variable cost per unit gives break-even in units.
Example: a coffee cart with $3,600 fixed costs and a $3.99 margin per drink breaks even at 903 drinks.
Count card fees, ingredients and packaging as variable costs, and add a 10% buffer as the SBA suggests.
A $0.50 price increase cuts the cart's break-even by 99 drinks a month, about what $400 less rent would save.

Your break-even point is the number of sales where your revenue covers every cost, so the month ends with zero profit and zero loss. Divide your monthly fixed costs by what each sale leaves after its variable costs, and you have it.

It's the first number to know before you open. More than 1 in 5 private-sector business locations opened in the year ending March 2024 had closed a year later, according to the Bureau of Labor Statistics.

What is the break-even point?

Treat the break-even point as your monthly sales floor. The U.S. Small Business Administration defines it as the point where total cost and total revenue are equal, with no loss or gain. Below it, you lose money on the month. Above it, every sale adds profit.

You can express it two ways, and both answer the same question:

In units: How many products, drinks, haircuts or jobs you need to sell. Best for one main product or service.
In sales dollars: How much revenue you need to bring in. Best when you sell many products at different prices.

What is the break-even point formula?

Use the SBA formula: fixed costs divided by price minus variable cost per unit. The dollar version swaps the per-unit margin for the contribution margin ratio.

What you want	Formula
Break-even in units	Fixed costs ÷ (price per unit - variable cost per unit)
Contribution margin per unit	Price per unit - variable cost per unit
Contribution margin ratio	Contribution margin per unit ÷ price per unit
Break-even in sales dollars	Fixed costs ÷ contribution margin ratio

Contribution margin is the part of each sale left to pay fixed costs. A $5.50 drink that costs $1.51 to make and sell leaves $3.99, a 72.6% ratio.

How do you calculate the break-even point?

Work it out in four steps with monthly numbers. Suppose a mobile coffee cart has these costs. They're illustrative, not a benchmark.

1. Add up fixed costs: Commissary rent, insurance, permits and a loan payment come to $3,600 a month.
2. Find variable cost per unit: Ingredients and the cup cost $1.40 per drink. The 1.99% card fee on a $5.50 drink adds $0.11, for $1.51 total.
3. Find the contribution margin: $5.50 minus $1.51 leaves $3.99 per drink.
4. Divide: $3,600 divided by $3.99 is 902.1. Round up: the cart breaks even at 903 drinks, or about $4,962 in sales.

Four-step break-even calculation: $3,600 fixed costs, $5.50 price, $3.99 contribution margin and 903 drinks to break even

At 26 selling days a month, 903 drinks means about 35 a day. That daily target is the number to write on the cart, because nobody tracks a monthly goal at 7 a.m.

The SBA also suggests adding about 10% to cover expenses you can't predict. With $3,960 in fixed costs, the cart needs 993 drinks, or about 38 a day.

What counts as fixed and variable costs?

Sort every expense by one test: does it change when you sell one more unit? If it does, it's variable. If it doesn't, it's fixed.

Fixed costs: Rent or lease payments, salaries, insurance, property taxes, loan interest and depreciation, per the SBA.
Variable costs: Materials, packaging, shipping per order, commissions and card processing fees charged as a percentage of each sale.
Semi-variable costs: Phone plans, repairs, fuel and power mix both. The SBA recommends splitting them into their fixed and variable parts.
Costs paid less often: Turn quarterly or yearly bills into a monthly amount. A $1,200 annual permit becomes $100 a month.

Card fees are the variable cost owners forget most. If a fee is a percentage of the sale, it grows with every sale, so it belongs in the per-unit cost, not in fixed overhead.

How do you find the break-even point in dollars?

Divide fixed costs by your contribution margin ratio. This version works for a shop with 200 products, where counting units makes no sense.

Pull the ratio from your profit and loss statement: subtract all variable costs from revenue, then divide the result by revenue. Suppose a gift shop has $40,000 in monthly revenue and $24,000 in variable costs. Its ratio is 40%, so $6,000 in fixed costs means a break-even of $15,000 in sales.

How do price and costs change your break-even point?

Price moves break-even more than anything else. On the coffee cart, a $0.50 increase saves 99 drinks a month, while a $400 rent increase adds 100.

Scenario	Margin per drink	Break-even drinks	Drinks per day
Base case ($5.50 price)	$3.99	903	34.7
Price raised to $6.00	$4.48	804	30.9
Price cut to $5.00	$3.50	1,029	39.6
Milk up $0.25 per drink	$3.74	963	37.0
Rent up $400 a month	$3.99	1,003	38.6

The price cut is the trap. Dropping $0.50 to win customers means you need 126 more drinks each month just to stand still. Test a higher price first, then use how to price a product to check the new price still leaves the margin you want.

Break-even chart where revenue and total cost lines cross at 903 drinks and $4,962, with loss before and profit after

What is the margin of safety?

Margin of safety tells you how far sales can fall before you lose money. Subtract break-even sales from your actual sales, then divide by actual sales.

If the cart sells 1,200 drinks in a month, its margin of safety is 1,200 minus 903, divided by 1,200: 24.8%. Sales can drop almost a quarter before the month turns red. Keep it above 20% and a rainy week won't put you underwater.

How long does it take a business to break even?

Count the months it takes your monthly profit to pay back what you spent to open. The SBA notes that some companies take years before turning a profit, which is why lenders and investors ask for this number.

Suppose the cart cost $15,000 to start. At 1,200 drinks a month it earns $1,188.66 after fixed costs, so it pays back the startup cost in about 13 months. Track the same math monthly in a cash flow spreadsheet so you see the payback date move as sales change.

How do you track your sales against break-even?

Check progress every week, not at month end, when it's too late to fix. The coffee cart's target is $4,962 a month, or about 35 drinks a day.

Ask the JIM Agent "Am I on track for $4,962 this month?" and it answers from your real sales. Card fees stay simple to model, too: Tap to Pay costs a flat 1.99% per sale with no monthly fee, which is the $0.11 per drink built into the variable cost above. See JIM pricing for the rate on payment links.

Frequently Asked Questions

What is a good break-even point?

A good break-even point sits well below the sales you can realistically reach. If your break-even needs 90% of your busiest month, raise the price or cut fixed costs before you commit.

Is break-even the same as profit?

No. At break-even your profit is zero. Every sale after that point adds its contribution margin to profit.

Does the break-even point include the owner's salary?

It should. Add the monthly amount you need to pay yourself to fixed costs, or your break-even point will hide a month where the business pays everyone but you.

How do I calculate break-even for several products?

Use your overall contribution margin ratio from your profit and loss statement, then divide monthly fixed costs by it. The result is break-even in sales dollars across your product mix.

Can the break-even point change?

Yes, every time your price, rent, supplier costs or fees change. Recalculate it whenever one of those inputs moves.

Is there a free break-even calculator?

Yes. The SBA break-even calculator uses the same formula as this guide and works with monthly numbers.