Break-Even Point: Knowing When You Start Making Money
When Tom opened his small gym, he assumed he’d be profitable once the doors opened. But after a few months of mixed cash flow, his accountant asked, “Do you know your break-even point?” Tom admitted he didn’t—and learning it changed everything.
What the Break-Even Point Tells You
Your Break-Even Point is the level of sales your business must reach to cover all expenses—no profit, but no loss.
It’s the moment where your revenue equals your costs.
Formula:
Break-Even Sales = Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit)
This tells you how much you need to sell just to stay afloat. Beyond that point, every dollar contributes directly to profit.
Why It Matters for Small Businesses
Understanding your break-even point helps you:
Set sales goals that actually make sense
Price your products or services properly
Make smarter hiring or expansion decisions
Spot problems early before they become crises
In short, it’s your “bare minimum” for survival—and a critical planning tool for growth.
Real-World Example
Tom’s gym had:
Fixed Costs (rent, salaries, insurance): $120,000 per year
Average membership fee: $50 per month
Variable Costs (utilities, supplies): $20 per member
His Contribution Margin per member = $50 – $20 = $30
Break-Even = 120,000 ÷ 30 = 4,000 member-months per year
That’s about 334 active members per month.
Once Tom hit that number, the gym finally began turning a profit. Knowing this gave him confidence to plan promotions and manage staffing with real targets instead of guesswork.
Tips to Use Break-Even Analysis Wisely
Recalculate annually. Costs and pricing change—update your numbers.
Include owner salary. Your time is a real cost, not “free.”
Use it for pricing strategy. Test “what if” scenarios for new services.
Check your safety margin. How far above break-even are you?
Combine it with your cash flow forecast. Together they reveal the full picture.
The Takeaway
Your break-even point is one of the simplest yet most powerful tools in business. It replaces guesswork with clarity—telling you exactly how much you need to sell to start earning real profit.
Tom no longer worries about “busy months” or “quiet months.” Instead, he focuses on staying comfortably above his break-even line—and that focus has made all the difference.
Not sure where your break-even point is—or how to improve it?
Talk to ANR — we’ll help you find your numbers and use them to build a more predictable, profitable business.
