How to Calculate Break-Even for Any Business: Formulas, Examples, and Industry Benchmarks

Break-even is the most intuitive financial concept in business: it's the point where you stop losing money and start making it. Every dollar of revenue before break-even goes toward covering your costs. Every dollar after goes toward profit.

Despite its simplicity, break-even analysis is one of the most powerful tools in your feasibility toolkit. It converts abstract financial projections into concrete, actionable targets — the exact number of customers, units, or revenue dollars you need each day, week, or month to cover your costs.

The Basic Break-Even Formula

Where:

• Fixed Costs = Expenses that don't change with volume (rent, insurance, base salaries, loan payments)
• Contribution Margin per Unit = Selling Price − Variable Cost per Unit
• Variable Costs = Expenses that change with each sale (materials, direct labour, payment processing, packaging)

Simple Example

A candle business:

• Fixed costs: $3,000/month (workshop rent, insurance, website, base salary)
• Selling price per candle: $28
• Variable cost per candle: $8 (wax, fragrance, jar, label, packaging)
• Contribution margin: $28 − $8 = $20

If you sell 150 candles, you cover all costs exactly. Candle 151 is pure profit (minus variable costs). If you only sell 100 candles, you lose $1,000 that month.

Break-Even Revenue Formula

Sometimes it's more useful to think in revenue terms rather than units:

Where Contribution Margin Ratio = Contribution Margin ÷ Selling Price

For the candle business: $20 ÷ $28 = 71.4%

Break-Even by Industry

Every industry has a different cost structure, which means break-even targets vary dramatically.

Restaurant Break-Even

Restaurants have high fixed costs (rent, base staffing) and moderate variable costs (food, per-meal labour).

• Fixed costs: $18,000/month (rent $6K, base staff $8K, utilities $2K, insurance/other $2K)
• Average ticket: $42
• Variable cost per cover: $16 (food cost 30% = $12.60 + variable labour $3.40)
• Contribution margin: $26

For a 60-seat restaurant, that's less than 0.5 turns per service — achievable even in the ramp-up period.

Hotel Break-Even

Hotels have very high fixed costs and relatively low variable costs per room sold.

• Fixed costs: $120,000/month (mortgage/lease $50K, base staff $45K, utilities $12K, insurance/maintenance $13K)
• ADR (Average Daily Rate): $195
• Variable cost per occupied room: $45 (housekeeping, amenities, laundry, breakfast)
• Contribution margin: $150

For a 100-room hotel: 800 ÷ (100 × 30) = 26.7% occupancy

This means the hotel covers its costs at just 27% occupancy — but it won't generate returns on the investment until occupancy is much higher. That's why feasibility studies look at NPV and IRR, not just break-even.

SaaS Break-Even

SaaS businesses have low variable costs but significant fixed costs in development and marketing.

• Fixed costs: $15,000/month (developer salary $8K, infrastructure $1K, tools $1K, marketing $5K)
• ARPU: $49/month
• Variable cost per customer: $3/month (support, infrastructure scaling)
• Contribution margin: $46

But SaaS has a compounding dynamic: customers accumulate month over month. If you acquire 40 new customers per month with 5% monthly churn, you reach 326 customers in approximately month 10.

E-Commerce Break-Even

• Fixed costs: $4,000/month (platform, warehouse, insurance, staff)
• Average order value: $55
• Variable cost per order: $32 (product $20, shipping $7, payment processing $2, packaging $2, returns allowance $1)
• Contribution margin: $23

Time-Based Break-Even (Payback Period)

The examples above calculate operating break-even — covering monthly costs. But there's a larger break-even question: when do you recover your initial investment?

This is the payback period, and it requires accounting for the CAPEX:

Restaurant example:

• Total investment: $280,000
• Annual net profit (at projected volume): $72,000
• Payback period = $280,000 ÷ $72,000 = 3.9 years

This is the simple payback. Discounted payback — which accounts for the time value of money — will be longer, typically 4.5–5 years for this example.

Using Break-Even for Decision-Making

Location Selection

Calculate break-even for each potential location using location-specific rent, foot traffic estimates, and demographic data. The location with the lowest break-even point relative to its traffic potential offers the best margin of safety.

Pricing Strategy

Break-even analysis reveals the relationship between price and required volume. Higher prices mean fewer sales needed to break even, but potentially lower total volume. Lower prices mean more sales needed, but potentially higher volume. There's a sweet spot where total profit is maximised.

Staffing Decisions

Every additional employee increases fixed costs and raises the break-even point. Break-even analysis quantifies exactly how much additional revenue each hire needs to generate to be worthwhile.

Go/No-Go Threshold

The most critical use: comparing break-even requirements against realistic demand estimates. If your break-even requires 100 daily customers and your location analysis suggests 60–80 are realistic, the concept has a problem. If break-even requires 40 and realistic demand is 80–120, you have a healthy margin of safety.

The Bottom Line

Break-even analysis converts financial projections into concrete daily targets. It tells you the minimum performance needed to survive, and the gap between that minimum and your projected performance is your margin of safety.

The larger that margin, the more resilient your business. The smaller that margin, the more risk you carry.

• What is NPV, IRR, and Payback Period?
• What-If Analysis Explained
• How to Write a Feasibility Study