What is Break-Even Point?
Break-even point is where total revenue equals total costs, meaning you're neither making nor losing money. It's the threshold you must cross to become profitable.
For startups, break-even represents a critical milestone. Before break-even, you're burning cash and dependent on external funding. After break-even, you control your own destiny.
Why Break-Even Matters
Knowing your break-even point helps you set targets and understand how far you are from profitability. It also reveals how changes in pricing, costs, or volume affect your path to profit.
Break-even analysis is essential for fundraising. Investors want to know when you'll become self-sustaining and how much capital is needed to get there.
Calculating Break-Even
Divide fixed costs by contribution margin per unit. If fixed costs are $50K/month and each customer contributes $500/month, you need 100 customers to break even.
Break-Even (units) = Fixed Costs ÷ Contribution Margin per Unit
Break-Even (revenue) = Fixed Costs ÷ Contribution Margin %
Your business economics:
- Fixed costs: $100,000/month
- Average revenue per customer: $500/month
- Variable cost per customer: $100/month
- Contribution margin: $400/customer
Break-Even = $100,000 ÷ $400 = 250 customers
You need 250 paying customers to cover all fixed costs. Customer 251 starts generating profit.