Finance

Break-Even Analysis: A Step-by-Step Guide for Founders

Break-even analysis answers one question: how much do I have to sell before I stop losing money? It’s the first calculation any founder, store owner or product manager should run before launching anything new.

The Two Formulas

Break-even (units) = Fixed Costs ÷ (Price per Unit − Variable Cost per Unit)

Break-even (revenue) = Fixed Costs ÷ Contribution Margin %

Run both versions in our Break-Even Calculator.

What Counts as Fixed vs Variable

• Fixed: rent, salaries, software, insurance — paid regardless of volume.
• Variable: raw materials, payment processing, shipping, sales commissions.

Worked Example: A DTC Candle Brand

Price: $30. Variable cost per unit: $11. Monthly fixed costs: $9,500.

• Contribution margin per unit: 30 − 11 = $19
• Break-even units: 9,500 ÷ 19 = 500 candles/month
• Break-even revenue: 500 × $30 = $15,000/month

The Hidden Assumptions

1. Price stays constant — discounting blows up the model.
2. Variable cost per unit stays constant — bulk discounts and shipping changes break it.
3. Single-product math — for multi-SKU businesses, use weighted contribution margin.

Pair It With Margin and Markup

Break-even tells you the floor. Profit margin tells you the ceiling. Use both.

FAQs

How often should I recalculate? Every time fixed costs or pricing changes — at minimum quarterly.

Does break-even include taxes? Standard models exclude income tax (it’s after profit) but include sales tax pass-through.