What is a Break-Even Point?

Turning a profit is the ultimate goal of every Malaysian business. However, it’s not as simple as having a stellar product or service, there’s a lot that goes into an enviable bottom line.

The truth is, most businesses will operate at a loss before hitting the big time, so it’s important to have an indicator that things are on the right track. That indicator is the break-even point. 

This is the stage at which a business' total revenue equals its total costs—no profit, no loss.

Understanding at what point you’re breaking even isn’t just a step towards long-term profits, either. Knowing how to calculate a break-even point is essential for all manner of financial planning.

As you might imagine, calculating your break-even point can be tricky, especially if you’re producing or serving in larger volumes and juggling multiple expenses. 

In this guide, we’ll demystify the break-even point and give Malaysian businesses like yours some expert tips on the types of break-even points and how to integrate them into your operations.

The importance of calculating your break-even point

The break-even point is a strategic tool that helps Malaysian businesses stay competitive and financially resilient. Identifying the sales volume you need to cover costs helps you make informed decisions about everything, from pricing and budgeting to investing.

Let’s break that down:

• Pricing: Pricing is everything. Set prices too high and you’ll send customers to your competitors. Set them too low and you’ll end up in the red. Break-even analysis helps you find that sweet spot. For wxample, if a retailer in Kuala Lumpur is facing a rent increase, they may need to adjust their prices to maintain profitability. Without knowing their break-even point, they’d be operating in the dark.
• Budgeting: Break-even analysis highlights fixed and variable costs, helping businesses set realistic sales targets and manage resources wisely. All business goals, however big, must align with market realities.
• Investment: How can a business plan strategically, especially when those plans involve investments, without knowing how much they need to make to break even?

When businesses integrate digital tools, like QuickBooks, into their break-even analysis, insights become powerful tools that don’t just help them stay afloat, but thrive.

Break-even point formula: Understanding the basics

As with most key financial metrics, there’s a simple formula behind the magic. 

Break-even units formula

The break-even units formula is used to calculate how many units you need to sell to break even.

The basic formula is:

Break-Even Point (in units) = Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit)

Here’s what each component means:

• Fixed costs: Expenses that don’t change with production levels. Think rent, insurance, and salaries, all common overheads for many SMEs.
• Variable costs: Costs that fluctuate based on output, such as raw materials or packaging.
• Contribution margin: The amount left from each sale after covering variable costs.

To make things even clearer, here’s an example:

A bakery in Johor Bahru has RM10,000 in fixed monthly costs. They sell each cake for RM50. The variable cost per cake is RM30. Their break-even analysis would look like this:

RM10,000 ÷ (RM50 – RM30) = 500 cakes

In other words, the bakery must sell 500 cakes a month to break even (although they’d need to sell more to make a profit).

Hopefully, you can now clearly see why the break-even point is so important. With this formula in your back pocket, you can now make better decisions on everything from pricing to goal-setting.

However, calculating the break-even point is not always so simple:

Break-even price formula

It might be the case that you need to figure out the minimum selling price needed to cover both fixed and variable costs, not just the number of units. This is especially important in competitive markets where pricing can make or break profitability.

This is a little different from the break-even units formula and requires an extra component.

Here’s the formula:

Break-Even Price = (Fixed Costs ÷ Expected Units Sold) + Variable Cost per Unit

To calculate the break-even price, you’ll need to go over some past sales figures and find a realistic average.

Here’s the formula in action:

A local business in Shah Alam expects to sell 1,000 handmade notebooks per month. They have fixed costs of RM5,000, and each notebook costs RM8 to produce. The break-even price is:

(RM5,000 ÷ 1,000) + RM8 = RM13 per unit

So, they’ll need to sell their notebooks at RM13 or higher to avoid a loss.

As you can see, this formula has a slightly different focus from the break-even units formula. Malaysian businesses can use break-even price analysis to set competitive yet sustainable pricing that accounts for overheads and fluctuating costs. That can be particularly useful when entering new markets.

However, you’ll need to have a realistic expected units sold figure to work with.

How to calculate your break-even point: A step-by-step guide

We’ve investigated a couple of generic examples of break-even in action. However, you’ll need to implement break-even analysis into your own financial planning.

Here’s you can find your own business’ break-even point:

1. Identify your fixed costs: These are expenses that remain the same regardless of how much you produce or sell. For most Malaysian SMEs, fixed costs include rent, bills, salaries, and insurance.
2. Determine your variable costs per unit: These are a little trickier to find, as these costs change with production volume, such as materials, packaging, or delivery charges.
3. Set your selling price per unit: Decide how much you’re going to charge for one single unit. There’s a lot of science on pricing strategies , so make sure you choose wisely.
4. Use the break-even formula: Whether break-even units or break-even price, use one of the above formulas to find your break-even point.
5. Monitor and adjust: Break-even analysis isn’t one-and-done, you’ll need to monitor your sales carefully and recalculate if costs or prices change. QuickBooks can help automate this by tracking expenses and revenues in real time.

Break-even point and sales: How to compute break-even sales

Units and price are the two most common ways to calculate the break-even point, however, they’re not the only ways. There may be situations in which you want to calculate the amount of revenue required to cover both fixed and variable costs, not just the number of units.

For this, we use a break-even sales formula:

Break-Even Sales = Fixed Costs ÷ Contribution Margin Ratio

In case you don’t already know, here’s how to calculate the contribution margin ratio:

(Selling Price – Variable Cost) ÷ Selling Price

As always, let’s explore an example:

Let’s say a business in Kuching sells a product for RM100, with a variable cost of RM60. That gives a contribution margin ratio of:

(RM100 – RM60) ÷ RM100 = 0.40

Now, let’s turn to break-even sales. If the business’s fixed monthly costs are RM20,000, the formula would be:

RM20,000 ÷ 0.40 = RM50,000

So, to cover their expenses, the business needs to generate RM50,000 in sales each month.

Common mistakes to avoid in break-even analysis

Break-even analysis is one of your most important tools, so it’s important to get it right. However, it can be fiddly, especially if you’re not a trained accountant (or don’t have sophisticated accounting tools). Unfortunately, many businesses make avoidable mistakes that lead to inaccurate results and poor decision-making.

Here are some ofl the more common break-even mistakes businesses make, so you can avoid them:

• Misclassifying costs: One common mistake is mixing up fixed and variable costs. For instance, utilities or part-time labor costs may fluctuate monthly, meaning they can be considered variable costs.To avoid this, clearly partition fixed costs from variable costs when doing your break-even analysis.
• Ignoring changes in variable costs: It can be tempting to use the same figures every month, however, the whole point of variable costs is that they change. Relying on outdated or average costs can throw off your break-even calculations, so make sure to regularly update variable cost data.
• Overestimating sales volume: Many entrepreneurs assume they’ll hit high sales targets quickly. This leads to unrealistic break-even expectations and financial strain. To avoid this use conservative and evidence-based estimates for expected sales.

Using break-even analysis for business strategy

Break-even analysis isn’t just a one-and-done calculation. It can actually be used to inform a huge range of business strategy decisions that might otherwise be a lot more difficult. 

Here’s how to incorporate break-even for maximum impact:

• Pricing strategy: Knowing your break-even point helps set prices that cover costs while remaining competitive. Let’s say you’re a café in Ipoh, break-even data can reveal whether premium or value-based pricing will better support profitability.
• Cost control: Managing expenses is as important as making a profit. Break-even analysis highlights how fixed and variable costs impact your bottom line. You could be saving big bucks simply by taking a closer look.
• Growth planning: Looking to grow? Perhaps you want to launch a new product or expand into a new region. Whatever the case, break-even analysis offers a clear view of what’s financially viable. It helps you make decisions backed by real data so you’re not left disappointed—or worse.

Conclusion: Mastering break-even analysis for business success

As you can see, mastering break-even analysis may not be as simple as you first thought. For a start, there are multiple kinds of break-even analysis. Plus, for each of those, there are multiple components to keep track of. In short, it can take some practice to get break-even analysis right.

However, it’s well worth the effort. Break-even analysis is a fundamental part of any financial plan. Not just for budgeting, knowing your break-even point is crucial if you want to set prices strategically, plan growth initiatives, or make investments. 

Finally, it helps with goal-setting. You could even argue that the break-even point is the first step when it comes to setting sales goals that promise profitability over loss.

The good news is that you don’t have to conduct break-even analysis with pen and paper anymore. In 2025, digital accounting tools, like QuickBooks, can make the process fast and painless. QuickBooks can automatically generate the figures you need to plug into your formula, and even provide automatic real-time insights to help you forge a high-impact financial strategy, wherever and whenever you need it.

Try it for yourself. You can try QuickBooks for free with a 30 day trial!