How to Calculate Your Business Break-Even Point Before Launching

Before investing capital into inventory, leases, or software development, every founder must answer one vital question: How many units or dollars must we sell every month just to keep the doors open?

1. Categorize Your Expenses: Fixed vs Variable

The foundation of break-even analysis is auditing every monthly expense and classifying it strictly as either Fixed or Variable:

• Fixed Costs: Overhead expenses that remain identical regardless of whether you sell 0 items or 10,000 items (e.g. office rent, insurance, core employee salaries, website hosting).
• Variable Costs: Costs tied directly to unit production or fulfillment (e.g., raw material costs, packaging boxes, payment gateway transaction fees, unit shipping).

2. Calculate Contribution Margin

Your Contribution Margin is the dollar amount each individual unit sale contributes toward paying off your fixed overhead costs:

3. Apply the Break-Even Volume Formula

Once you know your total monthly fixed costs and contribution margin per unit, divide fixed costs by contribution margin:

Try our interactive tool with instant chart visualization: