Break-Even Point
Seuil de rentabilité in French
Quick definition
The break-even point is the sales level at which total revenue exactly covers total costs: no profit, no loss. Below it, every month costs you money; above it, each additional sale starts producing profit.
The formula, in units and in dollars
Break-even in units is [fixed costs](/dictionary/fixed-costs) divided by contribution margin per unit, where contribution margin is the selling price minus the variable cost of one unit.
Round-number example: a candle maker pays $4,000 a month in rent, insurance and other fixed costs. Each candle sells for $50 and costs $30 in wax, wicks, packaging and shipping. Contribution margin is $50 minus $30, or $20 per candle. Break-even is $4,000 divided by $20, so 200 candles a month.
The dollar version divides fixed costs by the contribution margin ratio instead: $20 divided by $50 is 40%, and $4,000 divided by 0.40 is $10,000 in monthly sales. Same answer, different units: 200 candles at $50 is $10,000. The dollar form is handy when you sell many different things and thinking in units stops making sense.
The question it answers before you start or expand
Break-even answers the bluntest question in business: how much do I have to sell just to survive? Before signing a lease, quitting a job or hiring a first employee, converting the plan into a break-even number makes it testable. Two hundred candles a month is about seven a day. Is that plausible for your market, your channel, your hours? A spreadsheet cannot tell you, but the question is now concrete.
It is also a scenario-testing machine. Rent goes up $600? Fixed costs become $4,600 and break-even rises to 230 candles. Thinking of cutting the price to $45? Contribution margin drops to $15 and break-even jumps to about 267 candles, a third more volume just to stand still. Rerunning the number takes seconds and regularly kills bad ideas before they cost anything.
Contribution margin: the underrated concept
The quiet star of the formula is contribution margin: each sale contributes a fixed number of dollars, first toward covering fixed costs, and then, once those are covered, straight into profit. Before break-even, each candle pays down $20 of the month's rent. After candle number 200, each one drops $20 into profit.
This is why volume beyond break-even is so profitable and why falling just short is so painful: the fixed costs get paid either way. Contribution margin is a close cousin of gross margin, and for many small businesses the two are nearly the same number seen from different angles: gross margin describes the whole income statement, contribution margin describes one more sale.
The limits of the simple model
The clean formula assumes one product at one price with neatly separated costs, and reality is messier. A business selling many products needs a blended contribution margin, weighted by what it actually sells, and a shift in mix moves the break-even point even when nothing else changes.
Some costs are also stepped rather than purely fixed: one delivery van handles a range of volume, then the next order requires a second van and fixed costs jump. It is worth remembering, too, that break-even is about profit on paper, not cash in the bank. A business can pass break-even and still be short of cash while customers take their time paying, which is a cash flow question the formula does not see. Treat the number as a living estimate to be reworked as the business changes, not a truth computed once.
In Canada
When Canadian owners run the numbers, GST/HST should be left out on both sides: the tax you collect on a $50 sale is not yours, and the GST/HST you pay on inputs is generally recoverable through input tax credits, so both the $50 price and the $30 cost are best measured before sales tax. Also decide whether "fixed costs" include your own required income. A break-even that covers the rent but pays you nothing is really a survival number for the business, not for you; many owners compute both versions.
Worked example
Dana is deciding whether to leave a day job to run her candle business full time. Fixed costs would be $4,000 a month, and she needs to draw $3,000 for herself, so her personal break-even uses $7,000 of monthly fixed costs. At a $20 contribution margin, that is 350 candles a month, or $17,500 in sales. Her best month so far, working evenings, was 180 candles. The number does not say no, but it says what has to be true first: roughly double the volume, a higher price, or lower costs per candle. She raises her price to $55, lifting the contribution margin to $25 and cutting the target to 280 candles.
Related terms
Reviewed by Alexandre Bernier, CFP®, CIM®, PFP®·Updated August 2026