Ever felt like you’re working flat out but not sure if you’re actually making money? You’re not alone. Many small business owners pour their heart, sweat, and weekends into their business, but when it comes to the numbers, things can get a bit… fuzzy.
That’s where understanding your breakeven point comes in. It’s not just accounting jargon, it’s your business’s financial “you are here” sign. And when you know where you’re standing, you can figure out where you want to go next.
Let’s cut through the noise: your breakeven point is the sales level where your total revenue equals your total costs. In other words, it’s the moment you don’t make a loss, or make a profit. The moment, where you breakeven. Everything you sell beyond this point? That’s profit. Everything below it? Well, you’re funding your losing money.
Knowing your breakeven point isn’t just a box to tick, it’s the number one metric every business owner should know! It tells you:
- How much you need to earn just to keep the doors open
- How many units/things/widgets you need to sell every day/week/month
- Whether this business idea is actually go to make you any money
- How many sales you need to make the profit you want
I’m constantly astounded by the number of business owners that have no idea how many units they need to sell each month just to cover costs. let alone to make the profit they want.
Here’s the simplified formula:
Breakeven Point ($) = Fixed Costs ÷ Gross Profit Margin
Where:
- Fixed Costs are things like rent, insurance, and base wages—costs that don’t budge no matter how busy you are.
- Gross Profit Margin is what’s left from each sale after you’ve covered the cost of making it. This is expressed as a percentage. Divide that by 100, to get a decimal.
Example: The Local Café
Let’s say you run Bean There, Brewed That, a café in suburban Brisbane.
- Fixed Costs: $6,000 per month (ex GST)
- Selling Price per Coffee: $5.00 (ex GST)
- Variable Cost per Coffee: $2.50 (ex GST)
- Gross Profit per Coffee = $2.50
- Gross Profit Margin = $2.50 ÷ $5.00 = 50%. Divide by 100 to get 0.5
- Breakeven Point ($) = $6,000 ÷ 0.5 = $12,000
So, you need $12,000 in monthly sales just to break even.
You can (and should) also do this at a business level, because (hopefully) sell more than 1 product. So take your gross profit margin per your profit & loss statement and divide that by the fixed costs. That will give you a business level breakeven point.
That’s the level of sales you need with the current product/service mix.
Now, Translate It Into Units
Now that you know how much money you need to make, you can figure out how many units that means:
Breakeven Point (units) = Breakeven $ ÷ Selling Price
In our café example:
$12,000 ÷ $5.00 = 2,400 coffees per month
That’s about 80 coffees a day (if you’re open every day). The 2,401st cup? That’s the sweet smell of profit.
- Test Your Pricing Power
- Raise price to $5.50:
- Gross Profit = $5.50 – $2.50 = $3.00
- Margin = 3.00 ÷ 5.50 = 0.545
- Breakeven $ = $6,000 ÷ 0.545 ≈ $11,009
- Units = $11,009 ÷ 5.50 ≈ 2,002 cups
2. Set Sales Targets That Make Sense
Instead of shooting in the dark, your breakeven gives you a solid minimum.
3. Make More Informed Decisions
Add new costs to your fixed/variable expenses and recalculate.
4. Spot Problems Early
If you’re consistently below your breakeven point, your costs might be too high or your pricing too low. Either way you’re losing money, and you need to take immediate action.
Calculate your breakeven, today. Start with last month’s numbers.
- Review pricing and costs regularly. Small tweaks can make big differences.
- Set sales targets that reflect reality, not hope.
- Use breakeven to guide decisions, not gut feelings.
- Check out our step by step guide with video and everything
You don’t need to be a spreadsheet nerd to run a great business, but you do need to know your numbers. Your breakeven point isn’t just a number. It’s the most fundamental knowledge you should have about your business. Without you are flying blind.