Calculate your break-even point
What is the break-even point?
The break-even point is the sales volume at which the company starts to generate a profit. Below that point, every unit sold produces an operating loss; above it, each additional unit contributes to profit.
It is one of the most important metrics for any SME, especially during start-up or expansion phases, when it is essential to know the minimum revenue for the operation to be sustainable.
SP = selling price · VC = unit variable cost
CM% = (SP − VC) ÷ SP × 100
The difference between selling price and variable cost (SP − VC) is called the unit contribution margin, the amount each unit sold "contributes" to covering fixed costs. Only once all fixed costs are covered does the business start to profit.
The difference between fixed and variable costs
This distinction is essential to calculate break-even correctly. A common mistake is to include variable costs among the fixed ones, which distorts the result and can lead to wrong pricing decisions.
| Type | Typical examples | Varies with sales? |
|---|---|---|
| Fixed costs | Rent, base salaries, insurance, software licences, accounting, depreciation | No |
| Variable costs | Raw materials, packaging, sales commissions, per-order shipping | Yes, proportional to volume |
| Semi-variable costs | Electricity, telecoms, flexible labour | Partially |
Practical tip: for semi-variable costs, estimate the fixed component (guaranteed minimum cost) and include it in fixed costs. The variable component can be assigned to the variable cost per unit.
Contribution margin explained
The contribution margin (CM%) is one of the most powerful indicators for pricing and scaling decisions. It shows what percentage of every euro of revenue is left to cover fixed costs and generate profit.
Example: if your selling price is €100 and the variable cost is €40, the unit CM is €60 and the CM% is 60%. It means that of every €100 billed, €60 stays with the company, and only €40 "goes out" to cover production.
A high CM% means each additional sale has a proportionally bigger impact on profit. Businesses with a CM% above 60% (software, services, premium products) scale far more efficiently than those with a CM% below 30% (volume retail, distribution).
3 ways to lower your break-even
- 1Reduce fixed costs
Every euro cut from fixed costs lowers break-even directly. Review annual contracts, negotiate rent during low-activity periods, consider pay-per-use models instead of fixed licences, and outsource what isn't core to variable structures.
- 2Raise prices with repositioning
A 10% price increase with the same cost structure can cut break-even by 15-25%. Premium positioning justifies higher prices, and the customers who stay are more profitable and loyal. Assess where you stand against the competition.
- 3Improve the margin on existing sales
Review your variable cost structure: renegotiate with suppliers on volume, drop low-margin SKUs and focus the sales effort on the products with the highest CM%. A healthy treasury helps you secure better purchasing terms, and factoring can free up liquidity to pay on the spot and capture discounts.
Frequently asked questions
Reach break-even faster
With factoring, you receive your invoices in 24-48h instead of waiting 60-90 days. More available cash means less pressure to reach the break-even point.