What is break-even analysis and how do I calculate it?

Break-even analysis tells you the sales level where total revenue equals total cost — the point where you are no longer losing money and not yet making a profit. It turns a vague business idea into a number you can test.

The standard formula is: fixed costs ÷ (price per unit − variable cost per unit). Fixed costs are the ones that stay put whether you sell anything or not: rent, insurance, software subscriptions, salaried staff. Variable costs rise with each sale: materials, payment processing, shipping. The difference between price and variable cost is your contribution margin — the dollars each sale throws off toward covering fixed costs.

Say fixed costs are $10,000 a month, you charge $50, and each unit costs $30 to make and ship. Contribution margin is $20, so you need 500 units a month to break even. Every sale past 500 adds $20 of profit.

Use it before launch, before a price change, and before you hire. It also exposes how sensitive you are: if variable costs creep up, the break-even number climbs fast. That is the real value — it answers “how much do I actually need to sell for this to work?”