Every business owner needs to know: "How many units do I need to sell to cover all my costs?" That's your break-even point. It's the most fundamental profitability calculation — and it takes just one formula.
Break-Even Units = Fixed Costs ÷ Contribution Margin per Unit
Contribution Margin = Selling Price − Variable Cost per Unit
Selling Price
£500
Variable Cost / Unit
£200
fabric + printing + packaging
Monthly Fixed Costs
£90,000
rent + salary + tools
| Scenario | Change | New BEP | Impact |
|---|---|---|---|
| Base case | — | 300 units | — |
| Price increase to £600 | +£100 | 225 units | −25% (easier) |
| Raw material cost rises to £250 | +£50 | 360 units | +20% (harder) |
| Rent increases to £110,000 | +£20,000 | 367 units | +22% (harder) |
| 10% discount (£450) | −£50 | 360 units | +20% (harder) |
Key insight: A 10% discount requires 20% more sales to break even. Discounting is expensive — understand the break-even impact before offering.
Break-Even Point = Fixed Costs ÷ (Selling Price − Variable Cost). Know this number for every product or service
Contribution margin is the key metric — it's what each unit contributes toward covering fixed costs, then profit
Higher contribution margin = lower break-even point. Focus on products/services with the highest margins
Use sensitivity analysis (what-if scenarios) to understand the impact of price changes, cost increases, or discounts
Break-even analysis informs pricing, product mix, cost control, and investment decisions — revisit it quarterly