How do I calculate break-even for a small business?

Divide your total monthly fixed costs by your gross margin percentage. For example, £15,000 fixed costs with a 50% gross margin gives a break-even of £30,000 in monthly revenue.

What is the difference between break-even and profit?

At break-even, total revenue equals total costs — profit is exactly zero. Any revenue above break-even contributes to profit at the gross margin rate. Any revenue below break-even results in a loss.

How does pricing affect break-even point?

Lowering prices reduces gross margin and raises break-even revenue. Raising prices increases gross margin and lowers break-even revenue — meaning you need less revenue to cover your fixed costs.

Financial Intelligence Operator Playbook

Break-Even Analysis for Small Business: Know Your Number

23 May 2026·Updated Jun 2026·8 min read·GuideIntermediate

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In this article

Why knowing your break-even number changes every financial decision you make
The correct break-even formula and the inputs you need
Break-even by unit versus break-even by revenue
How your break-even point changes with pricing and cost decisions
Cash break-even versus profit break-even
Using break-even analysis alongside your live financial data

Key Takeaways

Break-even analysis is the most fundamental financial calculation in business — it tells you exactly how much revenue you need to cover all costs and start generating profit. But the single-point calculation most businesses use is too simplified to be useful. This guide covers the full break-even framework including sensitivity analysis, scenario modelling, and how the number changes with your cost structure.

Why knowing your break-even number changes every financial decision you make
The correct break-even formula and the inputs you need
Break-even by unit versus break-even by revenue
How your break-even point changes with pricing and cost decisions
Cash break-even versus profit break-even

Why knowing your break-even number changes every financial decision you make#

A business that does not know its break-even point cannot make rational decisions about pricing, hiring, capital investment, or working capital. It is operating with a critical piece of information missing. The break-even point is the revenue level at which total costs equal total revenue — the boundary between loss and profit. Below it, every additional pound of fixed cost is a direct loss. Above it, every additional pound of contribution margin (revenue minus variable costs) flows to profit. Knowing this number with precision changes how you evaluate opportunities. A new product line that costs £4,000 per month in fixed costs needs to generate a specific contribution margin to break even. A price discount that improves volume also lowers contribution margin and raises break-even revenue. Every business decision moves the break-even point — understanding how it moves is fundamental to running a financially sound operation.

The correct break-even formula and the inputs you need#

Break-even revenue equals total fixed costs divided by gross margin percentage. If your monthly fixed costs are £18,000 and your gross margin is 45%, your break-even revenue is £18,000 / 0.45 = £40,000 per month. For businesses selling multiple products at different margins, use your weighted average gross margin — weighting each product's margin by its proportion of total revenue. The inputs this formula requires are: total fixed costs (every cost that does not change with revenue — rent, base payroll, insurance, software, loan repayments) and gross margin percentage (revenue minus variable costs, divided by revenue). The most common error is misclassifying semi-variable costs — those that change with revenue but not in direct proportion. Utilities, part-time labour, and some marketing spend fall here. For break-even purposes, include the base portion in fixed costs and the variable portion in variable costs.

Break-even by unit versus break-even by revenue#

Revenue-based break-even analysis is most useful for businesses with mixed product offerings. Unit-based break-even analysis is more useful when a business has a primary product or service and wants to understand volume requirements. Break-even units equals total fixed costs divided by contribution margin per unit, where contribution margin per unit is selling price minus variable cost per unit. If your product sells for £25, variable costs are £10 per unit, and fixed costs are £9,000 per month, break-even is £9,000 / £15 = 600 units per month. This tells you something the revenue calculation does not: your sales team needs to close at least 600 units before the business is profitable. For a service business, the equivalent calculation is break-even hours, or break-even client count — whichever unit most closely maps to how capacity is constrained and how the business is managed.

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How your break-even point changes with pricing and cost decisions#

Break-even analysis becomes most powerful when you use it dynamically — recalculating the break-even point as you consider different pricing and cost decisions before committing to them. A 10% price reduction on a product with 40% gross margins does not reduce your break-even by 10% — it raises it significantly. If revenue stays constant after the price cut, margin falls from 40% to 33%, and break-even revenue rises by 21%. Conversely, a 15% reduction in fixed costs through operational changes drops break-even revenue by 15% directly. Use break-even sensitivity to stress-test decisions: if you add a full-time employee at £35,000 per year, your annual fixed costs rise by £35,000, and your break-even revenue rises by £35,000 divided by your gross margin percentage. That number tells you exactly how much incremental revenue the hire needs to generate to justify the cost.

Cash break-even versus profit break-even#

Profit break-even (where revenue equals total costs including depreciation and accruals) and cash break-even (where actual cash inflows equal actual cash outflows) often differ significantly. For a business with significant debt repayment obligations, cash break-even is higher than profit break-even — the business can be accounting-profitable while remaining cash-negative. For a business with large depreciation charges on previously purchased capital equipment, the opposite can occur: cash break-even is lower than profit break-even. Understanding both numbers is particularly important for businesses in early growth phases, where capital investment creates accounting losses even as cash flow turns positive. Calculate cash break-even by replacing accounting depreciation with actual loan repayments in your fixed cost base, and stripping out non-cash cost items.

Using break-even analysis alongside your live financial data#

Break-even analysis is most useful not as a one-time calculation but as a continuous monitoring framework. When you know your monthly break-even revenue is £40,000, watching your actual monthly revenue progress toward that number in real time — rather than waiting for a month-end close — changes how you manage the business. AskBiz connects to Xero, QuickBooks, Shopify, and Stripe to aggregate revenue and cost data in near real time. You can track where you are relative to your break-even point mid-month, giving you enough lead time to respond to a shortfall before the month closes. Combining break-even analysis with live transaction data is one of the highest-impact changes a small business owner can make to their financial management practice — and it requires nothing more sophisticated than knowing the number and monitoring it consistently.

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