What’s my break-even point?
Your break-even point is the revenue level where you stop losing money and start making it. Every dollar below that line is a loss. Every dollar above it is profit. Here's how to find yours.
The short answer
Break-even revenue = Fixed costs / Gross margin percentage. If your fixed monthly costs are $42,000 and your gross margin is 60%, you break even at $70,000/month in revenue. Below that, you lose money. Above it, you profit.
Why knowing your break-even number changes how you make decisions
Most business owners have a vague sense of what they “need to make.” But that number is usually based on gut feel, not math. Your break-even point replaces the vague feeling with a specific target.
When you know your break-even is $70,000/month, every decision gets clearer. A new hire that adds $5,000/month to fixed costs moves your break-even to $78,333. A pricing increase of 10% drops it to $63,636. A rent increase of $1,200/month pushes it to $72,000. You can model any change against a concrete number instead of guessing.
It also tells you how much margin of safety you have. If you break even at $70,000 and you are doing $85,000, you have a $15,000 buffer. One bad month and you are still safe. But if you break even at $70,000 and you are doing $74,000, one slow week puts you underwater.
Fixed costs vs. variable costs: the two inputs to break-even
- Fixed costs. Expenses that do not change with revenue: rent, salaries (including yours), insurance, loan payments, software subscriptions, utilities. These are your overhead. They exist whether you sell $0 or $100,000.
- Variable costs (cost of goods sold). Expenses that scale with revenue: materials, direct labor per job, shipping, payment processing fees, subcontractor costs. These are captured in your COGS on the P&L.
Your gross margin is what remains after variable costs. Break-even is the point where your gross profit (revenue x gross margin) exactly covers your fixed costs.
How to calculate your break-even point in QuickBooks Online
- 1Get your gross margin
Go to Reports→ “Profit and Loss” for the last 3 months. Find Total Income and Cost of Goods Sold. Gross margin = (Total Income - COGS) / Total Income. Use the 3-month average for accuracy.
- 2Total your monthly fixed costs
On the same P&L, look at the expense section below Gross Profit. These are your operating expenses (mostly fixed): rent, salaries, insurance, software, utilities. Average them over 3 months.
- 3Calculate break-even revenue
Fixed costs / Gross margin = Break-even revenue. Example: $42,000 / 0.60 = $70,000. You need $70,000/month in revenue to cover all costs.
- 4Compare to your actual revenue
Look at your recent monthly revenue. How far above (or below) break-even are you? The gap between actual revenue and break-even is your margin of safety.
Total time: about 15 minutes. One report, two calculations. But you should recalculate whenever fixed costs change (new hire, rent increase, new subscription).
How to calculate your break-even point in Xero
- 1Get gross margin from the P&L
Go to Accounting → Reports→ “Profit and Loss” for the last 3 months. Xero shows Gross Profit directly. Divide by Total Revenue to get your gross margin percentage.
- 2Total your monthly operating expenses
In the same report, look at Total Operating Expenses below Gross Profit. Average over 3 months. These are your fixed costs.
- 3Divide and compare
Fixed costs / Gross margin = Break-even. Compare to your actual revenue to see your margin of safety.
Total time: about 10-15 minutes. Xero's layout makes the Gross Profit calculation easier since it is shown directly.
Why your break-even point shifts every time costs change
- Fixed costs creep up. A new software tool here, a salary bump there, an insurance premium increase. Each one quietly raises your break-even.
- Margins fluctuate. Material costs rise, subcontractor rates change, you offer a discount. Each percentage point of margin lost raises your break-even significantly.
- You forget to recalculate. You calculated break-even once, six months ago. Since then you added $4,000/ month in fixed costs. Your break-even moved from $70K to $76,667 and you did not notice.
Or see your break-even point updated automatically every month
Bottomline connects to your QuickBooks or Xero account and calculates your break-even point automatically. It updates every month as your costs and margins change:
Bottomline also shows you how your break-even has moved over time. If it is climbing faster than revenue, you see the squeeze forming months before it becomes a problem.