Glossary · Profit and analysis
Break-even point
The break-even point is the level of sales at which a business covers all its costs and makes neither a profit nor a loss. It is fixed costs divided by the contribution margin: the share of each sale left after variable costs. Every sale above break-even adds profit.
Glossary / Break-even point · Also called Break-even, Breakeven sales
How it works
Costs split into two kinds. Fixed costs, such as rent, insurance and salaries, stay the same whatever you sell. Variable costs, such as materials and card fees, rise with each sale. Each sale's price minus its variable cost is its contribution, which goes first to fixed costs and then to profit.
Break-even can be expressed in units (fixed costs ÷ contribution per unit) or in dollars of sales (fixed costs ÷ contribution margin percentage). It is a planning tool: for a new location, a price change or a new hire, it tells you how much more you must sell to pay for it.
Break-even is only as good as the cost split behind it. Some costs are partly fixed and partly variable, such as a phone plan with overage charges or staff who work overtime in busy months. Revisit the figures when prices or costs change.
Worked example: A coffee cart's break-even
A coffee cart has fixed costs of $4,500 a month: permit, insurance, loan payment and the owner's salary. Each coffee sells for $5.00 and costs $1.40 in beans, milk, cup and card fee, so the contribution is $3.60 a cup.
Break-even is $4,500 ÷ $3.60 = 1,250 cups a month, or $6,250 in sales. Over about 25 trading days that is 50 cups a day. The 51st cup each day is where profit starts.
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Updated October 25, 2026. General information, not tax, legal or accounting advice. Rules and rates change; check with the IRS, the CRA, your state or province, or your accountant.
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