Skip to main content
Book a free consultation

Accounting encyclopedia · Financial statements

Break-even point

The break-even point is the level of sales at which total revenue equals total costs, so the business makes neither a profit nor a loss. Below it you operate at a loss and above it you earn an operating profit. It is generally calculated by dividing fixed costs by the margin left after variable costs, and can be stated in dollars or in units.

Sora Accounting & Tax · General information · Editorial policy
Updated · 2 min read

Break-even is where sales and total costs are equal

The break-even point is the sales level at which revenue equals total costs, with a loss below it and a profit above it.

Visual labels: Total revenue; Total costs; Break-even point.

The formula

In dollars, break-even equals your fixed or indirect costs divided by your margin percentage, meaning the share of each sale left after the direct cost of what you sold. To state it in units, divide the dollar figure by your selling price per unit. Service businesses can use hours or projects in place of units.

The result depends on how consistently costs are classified. Costs that rise with sales belong in the margin, and overhead that stays put belongs on top. The contribution margin page explains that split.

A worked example

For illustration, a landscaping business has fixed costs of $12,000 a month for insurance, equipment payments, software and its office. After materials and crew labour, it keeps 40% of each sale. Break-even is $12,000 divided by 40%, or $30,000 of monthly sales.

At $30,000 the business earns nothing. At $40,000 it earns $16,000 of margin, which is $4,000 above its fixed costs. If fixed costs climb to $15,000, break-even rises to $37,500. The numbers are round and illustrative only.

Think of it as a range

Costs and margins move during the year, so a single number can mislead. It is more useful to calculate break-even under several scenarios, such as higher overhead, a lower margin or a price change, and see how far each shifts the target.

The figure can fall if you reduce fixed costs, raise prices or lower the direct cost of what you sell. Each choice has a trade-off, so test one change at a time before acting.

Break-even is not cash break-even

Break-even is an accounting measure. Loan principal repayments, owner withdrawals and inventory purchases can use cash without being expenses on the income statement, so the sales needed to cover your cash commitments may be higher. Customers paying late can widen the gap.

Ask your accountant which costs are fixed, whether your margin is measured consistently, and what break-even looks like on a cash basis. The break-even tool lets you test your own figures, and the cash flow page covers timing.

Sources & editorial notes

Sources checked October 24, 2026. The examples are illustrative and provide general information. Discuss how the guidance applies to your circumstances with your accountant.

Rules and guidance can change. Use the current official source and confirm the treatment for your facts. To flag an error, contact Sora.