Break-even analysis answers a simple question: how much do you need to sell to cover your costs? For small business owners, it’s one of the most useful planning tools because it connects pricing, costs, and volume into a single model.
Key concepts
Fixed costs
Fixed costs don’t change with volume in the short term (rent, software subscriptions, insurance, base salaries).
Variable cost per unit
Variable costs scale with each unit sold (materials, per-unit shipping, transaction fees).
Contribution margin
Contribution margin is what each unit contributes toward fixed costs and profit:
- Contribution margin per unit = price − variable cost per unit
- Contribution margin ratio = (price − variable cost) ÷ price
Break-even formulas
Once you know contribution margin:
- Break-even units = fixed costs ÷ contribution margin per unit
- Break-even revenue = break-even units × price
If you want to include a profit goal:
- Target units = (fixed costs + target profit) ÷ contribution margin per unit
How to use figflows
Open the Break-Even Calculator and enter:
- Fixed costs (monthly or annual—just be consistent)
- Variable cost per unit
- Selling price per unit
- Optional: target profit
Then run a few scenarios:
- Increase price slightly and see the impact on break-even units.
- Reduce variable cost (negotiating suppliers, improving operations).
- Increase fixed costs (adding a tool or a hire) to understand the volume you need to justify it.
Practical cautions
- If variable cost is greater than or equal to price, break-even doesn’t exist (you lose money on each unit).
- If your business has multiple products, run break-even using an average contribution margin weighted by sales mix.
Break-even analysis doesn’t replace full financial planning, but it’s a fast, high-signal way to make better pricing and cost decisions.