Break-Even Analysis: Find Your Break-Even Point (2026)

Break-even analysis calculates how much a business needs to sell to cover its fixed and variable costs. The break-even point is reached when total revenue equals total expenses.

Rising operating costs make that calculation more important. The Federal Reserve Bank’s 2025 Small Business Credit Survey found that 75% of employer firms faced higher costs for goods, services, or wages. Another 56% had difficulty paying operating expenses. Break-even analysis helps compare these costs with expected sales and set prices based on current expenses.

This guide explains how to calculate the break-even point and how to understand the result. 

What is break-even analysis?

Break-even analysis calculates how many units a business needs to sell, or how much revenue it needs to generate, to cover its costs. The break-even point (BEP) is reached when total revenue equals total expenses. After that point, additional sales generate profit.

For example, a business can use break-even analysis to calculate how many cellphone cases it must sell to cover warehousing costs or how many service hours it must bill to pay for office space. In Shopify’s Q4 2025 Survey of Store Owners,* 42% of respondents said ensuring profitability was their top business goal.

The calculation includes two types of costs:

• Fixed costs. Expenses that remain the same regardless of sales or production volume.
• Variable costs. Expenses that increase or decrease with sales or production volume.

Benefits of a break-even analysis

Break-even analysis shows how sales and costs affect profitability. It also gives businesses a basis for financial planning. The result informs small business budgeting by setting spending limits based on expected sales.

In Shopify’s Q4 2025 Survey of Store Owners,* 34% of respondents named stable cash flow as their second business goal, while another 41% said they review their finances daily. Break-even analysis supports both by showing the sales needed to cover costs before generating a profit.

A break-even analysis helps:

• Set prices. The calculation shows whether a price can cover both fixed and variable costs. Businesses use the result to review prices and profit margins.
• Set sales goals. The break-even point gives teams a revenue or unit target. Teams can use it to establish monthly or quarterly goals.
• Assess financial risk. The analysis reveals whether expected demand is high enough to cover costs.
• Plan for funding. It also appears in business plans and funding applications. A break-even analysis gives lenders and investors a view of the company’s path to profitability.

Break-even point formula 

Contribution margin is the amount left from each sale after variable costs are removed. That money goes toward fixed costs first. After fixed costs are covered, the rest becomes profit.

You can calculate the break-even point in two different ways, by volume (units sold) or by revenue. Both formulas rely on contribution margin.

Break-even point in units:

Break-even point (units) = Fixed costs / Contribution margin per unit

Where Contribution margin per unit = Average selling price − Variable cost per unit

Break-even point in sales dollars:

Break-even point (sales dollars) = Fixed costs / Contribution margin ratio

Where Contribution margin ratio = Contribution margin per unit / Average selling price

For example, suppose a business has the following:

• Fixed costs: $20,000
• Average selling price: $50 per unit
• Variable cost: $30 per unit

First, calculate the contribution margin:

$50 selling price − $30 variable cost = $20 contribution margin per unit

The break-even point in units is:

$20,000 fixed costs / $20 contribution margin = 1,000 units

The contribution margin ratio is 40%:

$20 contribution margin / $50 selling price = 0.4

The break-even point in sales dollars is:

$20,000 fixed costs / 0.4 = $50,000

The business must sell 1,000 units or generate $50,000 in sales to cover its costs. Sales above that point produce a profit.

Step 1: Gather your data

List the costs required to operate the business, then separate them into fixed and variable costs.

Use actual business figures where possible. Shopify stores can pull sales and product cost data from Shopify Analytics, then review earnings and payout information from the Finance page of the Shopify admin.

Fixed costs

Fixed costs stay the same even when sales change. Monthly rent is one example. Other overhead costs include expenses like insurance, software subscriptions, or admin that continue regardless of sales volume.

List every cost you pay regardless of how many units you sell. Add them together to find your total fixed costs.

Variable costs

Variable costs change with the number of units you sell; for example, product materials.

Some costs may fall into either group. Salaried workers are usually a fixed cost, whereby hourly workers may be a variable cost if staffing changes with sales volume.

Add all costs linked to one unit to find your variable cost per unit.

Average selling price

Use the average amount customers pay for one unit. Discounts can lower this figure, so it may be different from the listed price.

Step 2: Plug in your data

Enter your fixed costs, variable cost per unit, and average selling price into the template. The template automatically calculates your break-even point.

Round up when the result includes part of a unit. A break-even point of 92.5 means you need to sell 93 units.

Step 3: Run what-if scenarios

Change one variable at a time to see how it affects the break-even point. You might change the price while keeping the costs the same.

For example, lowering the variable cost from $30 to $28 raises the contribution margin to $22. The break-even point falls from 1,000 units to 910 units.

If your costs change frequently, use an app like Profit Calc to track costs and profit. You can use those figures to update your break-even calculation over time.

Note: Don’t forget any expenses

Leaving out an expense can make the break-even point inaccurate. Review each step needed to sell and deliver one unit before running the calculation. Following good bookkeeping practices makes it easier to record recurring expenses and assign them to the correct cost category.

Break-even analysis examples: When to use it

There are four common scenarios for when it helps to do a break-even analysis:

1. Starting a new business

A break-even analysis estimates how much a new business needs to sell to cover its costs. The result can be used to review pricing and startup expenses before launch.

2. Creating a new product

A new product may add costs for materials, production, or fulfillment. Before launching a product, a break-even analysis calculates how many units need to sell at a set price to recover those expenses.

3. Adding a new sales channel

Each sales channel introduces its own costs and fees, which affect the break-even point. For example, a pop-up shop may require rent, staffing, and equipment.

This applies to adding new online sales channels, like TikTok Shop. Will you be planning any additional costs to promote the channel, like TikTok ads? Those costs need to be part of your break-even analysis.

4. Changing your business model

A change in business model can affect both fixed and variable costs. Moving from dropshipping to holding inventory, for example, adds purchasing and storage costs that may require a different price or sales target.

Perform a cost-benefit analysis to compare the added expenses with the expected financial return before making the change.

Break-even analysis limitations

Break-even analysis treats costs and the price per unit as constant. It also uses sales volume as the only factor changing costs and revenue. Changes in demand, pricing, or operating costs can make the result less accurate. 

A break-even analysis has several limitations to keep in mind:

Not a predictor of demand

The calculation shows how much a business needs to sell. It does not show how many customers will buy the product.

Dependent on reliable data

The result is only as accurate as the figures used. Costs that change over time or fall into more than one category can make the calculation less precise.

For example, you may have a fixed monthly software subscription while advertising spend increases during busy sales periods .

Simplistic

Businesses often sell several products at different prices. A separate calculation may be needed for each product, or the business may need to use an average selling price.

This model assumes that only one thing changes at a time. In reality, as prices fluctuate, so do costs. For example, if you lower your price and sell more while also reducing your cost per unit if higher production qualifies you for bulk discounts or creates operating efficiencies. 

Ignores time

The break-even analysis is a snapshot; it ignores fluctuations over time. Your time frame will be dependent on the period you use to calculate fixed costs. 

It doesn’t account for future changes. If raw material costs double next year, the break-even point will be a lot higher unless you raise your prices. 

Ignores competitors

A basic break-even analysis doesn’t account for competitors’ pricing or other market conditions that influence demand. If a competitor lowers its prices, your business may need to adjust pricing or sales targets. 

Break-even analysis provides a starting point for reviewing costs and sales targets. Sales forecasts and cash flow reports can add more detail when planning business changes.

Tips to lower your break-even point

A high break-even point means the business must sell more units before covering its costs. There are ways to bring that number down.

The standard break-even formula is:

Break-even point (units) = Fixed costs / (Selling price − Variable cost per unit)

To estimate the minimum price needed to cover costs at any given sales volume, rearrange the formula to solve for price:

Break-even price = (Fixed costs ÷ Expected unit sales) + Variable cost per unit

For example, a business has $10,000 in fixed costs and expects to sell 1,000 units. Each unit costs $15 to produce. The break-even price is $25 per unit: ($10,000 / 1,000) + $15.

Or you can follow these tips: 

1. Lower fixed costs

See if there’s an opportunity to lower your fixed costs. The lower you can get them, the fewer units you’ll need to sell in order to break even. For example, if you’re thinking about opening a retail store and numbers aren’t working out, consider selling online instead. How does that affect your fixed costs?

2. Raise your prices

A higher price increases the contribution margin on each sale. The business can then cover its fixed costs with fewer units, as long as customers are willing to pay the new price.

3. Lower variable costs

Lower variable costs increase the amount left from each sale. The business can then cover its fixed costs with fewer sales.

Coop Sleep Goods demonstrates how this can work in practice. The company began with high material costs for its premium pillow fill. It ran with a lean team and accepted lower margins at first. As sales grew, it negotiated better supplier pricing and improved its unit economics over time.

Download your free break-even analysis template

If you haven’t already, download your free break-even analysis template.

A break-even analysis helps you see how pricing, costs, and sales volume fit together. Whether you’re launching a business, changing your prices, or introducing a new product, knowing your break-even point can help you set realistic goals and make more informed decisions.

*Based on a 2025 survey of 500 Shopify merchants conducted in English across Australia, Canada, the United Kingdom, Ireland, New Zealand, and the United States. Respondents were established merchants with two or more years on the platform. Results reflect the experiences of this specific sample and may not be representative of all merchants.