The break-even point is where a business stops losing money and starts making it — the sales volume at which total revenue equals total costs. Below it you're subsidizing each sale; above it, each sale adds profit.
Contribution margin drives it
Each unit sold contributes its price minus its variable cost toward covering fixed costs. Divide fixed costs by that contribution margin to get the number of units needed to break even. A higher price or lower variable cost lowers the break-even volume.
A worked example
Say fixed costs are $10,000 a month, each unit sells for $25, and each costs $15 to make. The contribution margin is $10 per unit, so you break even at 1,000 units — which is $25,000 in revenue. Unit 1,001 is the first to earn a profit; every unit after that contributes its full $10 to the bottom line.
Moving the break-even point
Three levers shift it: raise the price, cut the variable cost per unit, or reduce fixed costs. Lifting the price from $25 to $30 raises the margin to $15 and drops break-even to about 667 units. Because you're dividing fixed costs by the per-unit margin, small changes to that margin move the break-even point a lot.
That sensitivity cuts both ways — a discount that shaves a few dollars off the price can push your break-even volume up sharply, which is worth checking before running a promotion.
What the simple model assumes
This is a single-product, linear model: it assumes one price and one variable cost and ignores demand. In reality, selling far more units may require discounts that lower the margin, and fixed costs often jump in steps — a second shift, more equipment, extra space — rather than staying flat. Use break-even to understand the shape of your economics, then layer in those real-world wrinkles.