Break-even analysis: Calculating the break-even point to gain financial insights

Nearly half of business leaders (48%) cite increasing revenue as their top goal for 2025, according to the QuickBooks Entrepreneurship in 2025 report. For midsized businesses, understanding when your business will break even is critical to maintaining profitability and staying competitive.

If you’re looking to improve financial clarity and make data-driven decisions, break-even analysis can provide the insights you need. Read on to see how this formula can support your strategic planning and drive growth for your business.

What is a break-even point?

How to calculate the break-even point

Benefits of break-even analysis

Performing break-even analysis: The break-even point in action

When to use break-even analysis

Tips for lowering the break-even point

Boost productivity and enhance profitability

Break-even analysis FAQ

What is a break-even point? 

The break-even point (BEP) is the point at which your business’s costs equal its revenue. It shows when your business is neither making a profit nor a loss. 

To perform a break-even analysis, you’ll need to be aware of the following factors:

• Fixed costs: Costs that remain the same regardless of your sales volume, such as lease and rental payments or insurance payments
• Variable costs: Costs that fluctuate according to your sales volume and number of units sold, such as raw materials and product costs or the costs associated with performing your service
• Sales price: The selling price you’ve determined for your product or service
• Sales volume: Either unit sales or service volume
• Contribution margin: The profit of a single product or service

Break-even analysis can be broken down into two parts: 

1. Calculating the break-even point 
2. Analyzing profitability based on the break-even point calculation

If a business is at the precise break-even point, it’s neither running at a profit nor at a loss; it has simply broken even.

How to calculate the break-even point

Before you can begin your break-even analysis, you’ll first need to determine your business’s break-even point. 

The break-even point can be found by using one of two formulas: 

• Break-even point formula in sales dollars 
• Break-even point formula in the number of units

Calculating the break-even point in sales dollars

Calculating the break-even point in sales dollars will tell you how much revenue you need to generate before your business breaks even.

The break-even point formula in sales dollars is:

Break-even point (Sales dollars) = Fixed costs ÷ Contribution margin

The contribution margin is the profit of a single product or service. To find the contribution margin ratio, use the following formula:

Contribution margin = (Sales price per unit – Total variable costs per unit) ÷ Sales price per unit

Calculating the break-even point in number of units

If you’d prefer to calculate how many units you need to sell before breaking even, you can use the number of units in your calculation. 

The break-even point formula in number of units is: 

Break-even point (units) = Fixed costs ÷ (Sales price per unit – Total variable costs per unit)

Once you’ve decided whether you want to find your break-even point in sales dollars or units, you can begin your analysis.

Benefits of break-even analysis

Whether you're an existing business or just starting out with a new business idea, performing a break-even analysis is a great way to learn more about your business’s financial performance and make sure you’re budgeting effectively. 

Here are four ways businesses can benefit from break-even analysis.

• Determine profitability: Find out if you’re breaking even or how much more revenue you need to generate to reach profitability.
• Set future budgets: Use break-even analysis to make informed decisions on pricing and sales targets.
• Mitigate financial risks: Identify whether a product is worth pursuing before you make costly decisions.
• Price products accurately: Ensure your pricing strategy will allow you to break even and move toward profitability.

Performing break-even analysis: The break-even point in action

Break-even analysis is an essential part of financial forecasting for all businesses, from startups to established businesses looking to roll out a new product or increase total revenue. Here are two examples of the break-even analysis template in use:

Break-even analysis example using sales dollars

Let’s say your company has developed a new widget. You’re trying to determine the break-even point of your new business. Here’s what you know:

• Fixed costs of running your business: $20,000 per quarter
• Unit variable cost: $10
• Proposed unit price: $30

1. Calculate the contribution margin 

First, you’ll need to calculate the contribution margin:

Contribution margin = ($30 ÷ $10) ÷ $30

The above formula calculates your contribution margin at $0.10.

2. Plug in your fixed costs and contribution margin

In the scenario above, your calculation would look like this:

Break-even point (sales dollars) = $20,000 ÷ $0.10

According to this formula, your break-even point will be $200,000 in sales revenue. This analysis shows that any money generated over $200,000 will be net profit.

3. Compare results to your forecasted sales 

Compare this formula to your forecasted sales for the quarter. Will you break even on your revenue? If not, you may need to:

• Increase your sales price
• Increase your level of sales
• Lower your variable cost per unit by lowering labor costs or raw materials cost

How to determine the level of production using break-even analysis

Let’s say you’re trying to determine how many units of your widget you need to produce and sell to break even using the example above. 

In this scenario, we’ll calculate the following:

Break-even point (units) = $20,000 ÷ ($30 – $10)

According to the above formula, you’ll need to generate and sell 1,000 units to break even. Any more than that will generate profit. How does that compare to your total sales forecast? 

If the units sold to break even are greater than your forecasted sales volume, you may want to:

• Increase your level of sales
• Increase your unit production by increasing direct labor

When to use break-even analysis

Now that you know some of the benefits and limitations of break-even analysis, you might wonder when it’s best to use it. Here are a few scenarios where you could use it to your advantage:

Starting a new business

Priority: Assess the viability of your business idea before investing too much.

When starting a new business, this analysis can help you find out if your business idea is financially viable before you invest too much time or money. 

For example, If your startup costs are $50,000 and your product sells for $50 with a $20 production cost, break-even analysis shows you’ll need to sell roughly 1,700 units to cover your expenses. From there, you can decide on pricing, production, and sales targets so your business can stay on the right track.

Introducing a new product or service 

Priority: Determine how many units need to be sold to cover costs.

Launching a new product or service can be exciting but equally intimidating, especially when you're unsure how much you’ll need to sell to cover your costs. This is where a break-even analysis comes in handy. It helps you figure out how many units you need to sell or services you need to provide to make sure your investment pays off. 

For instance, if your restaurant is introducing a new signature dish, you’ll want to know how many orders of that dish you need to sell to cover the costs of ingredients, staff time, and marketing.

Lowering your prices

Priority: See how much more volume you need to sell if you cut prices.

Looking to beat a competing business? One strategy is to lower your prices to potentially bring in more customers. However, cutting prices can affect your profit margins. Before lowering your prices, it's a good idea to conduct a break-even analysis to see how much more volume you’ll need to sell to make up for the lower price. 

Here’s an example: If you reduce the price of a product from $50 to $40, but the cost to produce it remains $20, you’ll need to sell 25% more units to make up for the lower margin. 

Securing investors

Priority: Demonstrate your understanding of your business’s financials.

When securing investors, especially starting out, they want to see that you’ve done your homework and understand how your business will make money. This is where break-even analysis becomes a valuable tool. It shows potential investors how much you need to sell to cover your costs and when they can expect to see returns on their investments.

Benchmarking performance

Priority: Track progress and adjust strategies if you're not meeting sales targets.

Break-even analysis can also be a great way to measure and benchmark your business's performance over time. Say your break-even is 300 units per month. Over the past couple of months, you’ve consistently sold 400 units, meaning you’re exceeding your goal and generating profit. 

On the other hand, if you’re only selling 250 units, you’ll need to either increase sales or lower costs to hit that target. Tracking this data over time can help you identify patterns—e.g., slower sales during specific months—so you can adjust your strategy based on those trends.

Tips for lowering the break-even point 

When analyzing your break-even point, not only do you want to see that your business is breaking even, but you’re also looking to measure your business’s profitability. Here are a few ways to lower your break-even point and increase your profit margin.

Increase product prices

If you can’t reach your break-even point with your current sales price, consider raising it. This strategy increases the contribution margin per unit, lowering the number of units you need to sell to break even.

Here are a few key steps to successfully implement a price increase:

• Reduce risk and improve cash flow
• Evaluate demand for your product
• Ensure customers perceive added value
• Test different price points to find the right balance
• Monitor competitors' pricing strategies

Outsource fixed costs 

Outsourcing fixed costs turns them into variable costs, which you only incur when a sale is made. This helps lower your break-even point and reduces risk.

Fixed costs that can be outsourced include: 

• Administrative work 
• Developers or designers 
• Manufacturers 
• Salespeople 

Reduce variable costs 

Cutting variable costs, or direct costs tied to production, increases your contribution margin and strengthens your business’s financial position.

A few simple ways you can reduce your variable costs are: 

• Redesigning the product with different materials
• Removing unnecessary production supplies
• Reducing production time 
• Lowering overall labor costs

Boost productivity and enhance profitability

As an executive, there are risks you take every day. Break-even analysis is a way to calculate the risks involved in your endeavor and determine whether they’re worthwhile before investing in the process.

With the right tools, you can make smarter financial decisions, mitigate risk, and seize new opportunities. If you’re ready to streamline your operations and enhance profitability, consider accounting software or an ERP solution like Intuit Enterprise Suite.