Break-even point

• The calculation: your fixed costs divided by what you earn from each sale
• Fixed costs: what you pay regardless of your sales (rent, base salaries, software)
• Variable costs: costs that increase as you sell more (materials, shipping, transaction fees)
• Below it, you lose money; above it, every sale adds to your profit

Imagine a coffee shop: until the day’s sales cover the rent, electricity, and the server’s salary, the owner is operating at a loss; the first sale that exceeds these costs marks the start of a profit. Let’s break down the numbers for this café: $8,000 in fixed costs per month (rent, electricity, wages) and a $4 markup on each $5 cup of coffee. This means the café needs to sell 2,000 cups of coffee per month, about 67 per day, to break even; every additional cup is profit. Knowing this break-even point tells you how much you need to sell each month before you make any money, and helps you set your prices, decide whether to hire staff, or evaluate a new location. Many entrepreneurs calculate this once and then forget about it, even though every increase in costs shifts the break-even point. This calculation is based on expenses that are clearly categorized in your chart of accounts and up-to-date figures in your general ledger. The BDC Bankeo also offers tools to track this break-even point. To turn this into a true dashboard, Bankeo provides you, for free, with a vetted accountant or CPA who focuses on profitability, not just taxes, and we’re here to support you every step of the way.

What exactly is the break-even point, in simple terms?

It’s the sales amount at which you stop losing money. Below that amount, your sales don’t yet cover all your expenses; once you exceed that amount, each sale starts to generate a profit. It’s also called the break-even point, because it’s the point at which you’re neither losing nor gaining money.

How do I calculate my break-even point?

You divide your fixed costs (those that don’t change: rent, base salaries, software) by what you’re left with from each sale after paying your variable costs (materials, shipping). Example: You sell a service for $100 that costs you $60 in variable costs, so you’re left with $40 per sale; with $80,000 in fixed costs per year, it takes 2,000 sales to break even. Every sale beyond that is profit.

How often should I recalculate it?

Whenever something significant changes, a rent increase, a new hire, a price change, or a new product line, an SME should review its numbers. For an SME, a review every three months is a good frequency. If you want to turn this calculation into a real management dashboard, Bankeo will connect you for free with a vetted accountant or CPA who focuses on profitability, not just taxes, and we’ll be right by your side.