Break-Even Analysis for Small Business (With Example)

If you don’t know your break-even point, you’re guessing whether your business makes money — every pricing decision, every new product, every slow month becomes a shot in the dark instead of a calculated risk.

What break-even analysis actually tells you

Break-even analysis answers one question: how many units (or how much revenue) do you need to sell before your business stops losing money and starts profiting? Below that number, you’re covering costs. Above it, every peso of contribution margin becomes real profit.

It’s one of the simplest tools in small business finance, but most owners never sit down and compute it. They just watch the bank balance and hope it grows. Break-even analysis turns that hope into a target number you can track daily or weekly.

The three numbers you need

Break-even math only needs three inputs:

• Fixed costs — rent, salaries, utilities, loan payments, subscriptions — costs that stay the same whether you sell 1 unit or 1,000.
• Selling price per unit — what the customer pays for one item or service.
• Variable cost per unit — ingredients, packaging, delivery fee, payment processing fee — costs that scale with each sale. This is closely tied to your cost of goods sold; if you’re unsure how to isolate it, our guide on how to compute COGS walks through the process.

From these, you get contribution margin per unit — the amount each sale contributes toward covering fixed costs, and eventually, profit.

The formula

Contribution margin per unit = Selling price − Variable cost per unit

Break-even units = Fixed costs ÷ Contribution margin per unit

That’s it. No complicated spreadsheet required — though having one built for you saves the setup time.

Worked example: a food stall

Let’s say you run a food stall selling a rice meal for ₱50. Your monthly fixed costs (stall rental, one part-time helper, electricity) total ₱20,000. Each meal costs you ₱20 in ingredients, packaging, and gas.

• Selling price: ₱50
• Variable cost per unit: ₱20
• Contribution margin per unit: ₱50 − ₱20 = ₱30
• Fixed costs: ₱20,000

Break-even units = ₱20,000 ÷ ₱30 = 666.67, rounded up to 667 meals per month.

Spread across a 30-day month, that’s about 22 to 23 meals a day just to break even. Sell 20 meals a day and you’re still losing money every month. Sell 25, and you’re clearing roughly ₱2,850 in monthly profit above break-even (58 extra meals x ₱30 contribution margin, minus rounding). That single number — 667 meals, or 23 a day — gives you a concrete daily sales target instead of a vague hope that “business is okay.”

Why this matters more than revenue targets

Many small business owners set revenue goals (“I want to hit ₱50,000 this month”) without checking whether that revenue actually clears costs. Break-even analysis forces you to think in units and margins, not just top-line sales. A few practical uses:

• Pricing decisions. Raise your price from ₱50 to ₱60 and your contribution margin jumps to ₱40, dropping break-even to 500 meals — a much easier target, assuming demand holds.
• New product decisions. Before launching a new menu item or product line, run break-even on it separately. If the required volume is unrealistic for your foot traffic or market size, it’s a warning sign before you invest.
• Cutting fixed costs. If fixed costs drop to ₱15,000 (say you negotiate lower rent), break-even falls to 500 units. Small reductions in fixed costs can meaningfully lower the sales pressure on your team.
• Setting realistic goals for staff. “We need to sell 23 meals a day to break even, 30 to hit our profit target” is far more actionable than a vague sales quota.

Break-even is also the natural companion to your monthly profit and loss statement — one tells you if you made money last month, the other tells you what it takes to make money this month. If you haven’t built a P&L yet, see our simple profit and loss statement guide.

Common mistakes to avoid

• Forgetting owner’s salary or your own time. If you don’t pay yourself a fixed amount, include a reasonable owner’s draw in fixed costs, or your break-even number will understate what you truly need to earn a living.
• Mixing fixed and variable costs. Delivery fees, packaging, and per-order platform commissions are variable, not fixed. Miscategorizing these skews your contribution margin and gives a false break-even point.
• Ignoring seasonality. A break-even number based on average monthly fixed costs may not hold in a slow month (like after the holidays) when sales dip but rent stays the same.
• Treating break-even as the finish line. Break-even means zero profit, not success. Set a second, higher target — your actual profit goal — on top of the break-even number.
• Not tracking cash separately. Being profitable on paper and having cash in the bank are two different things, especially if customers pay late or you stock up on inventory. Pair break-even analysis with basic cash flow tracking — our cash flow 101 for small business article covers the basics.

Turning this into a habit

Once you know your break-even units, convert it into a daily or weekly target and track actual sales against it. A simple spreadsheet with your fixed costs, price, and variable cost per unit built in will recalculate your break-even point automatically the moment any of those numbers change — which matters, because rent increases, supplier prices shift, and you may adjust pricing more often than you think.

Frequently asked questions