# Break-Even Point

_Also known as: break even_

**Category:** Finance
**URL:** https://skiporship.com/glossary/break-even-point
**Last updated:** 2026-08-08

## Definition

The break-even point is the level of sales at which total revenue exactly covers total costs, producing neither profit nor loss — the threshold a business must clear to become self-sustaining.

## What it means in practice

Break-even converts a cost structure into a concrete sales target. Rather than asking whether a business is viable in the abstract, it produces a specific number of units or customers required each month — which is immediately testable against whether your channels can deliver it.

The mechanism is contribution margin: the amount each sale contributes toward fixed costs after its own variable costs. Fixed costs divided by contribution per unit gives the number of units needed. This is why raising price or cutting variable cost moves break-even so sharply — both increase the contribution of every single sale.

Calculating break-even in units rather than revenue is consistently more useful. '£20,000 a month' is abstract, while '167 customers' can be checked directly against your funnel: if your channel produces 40 qualified leads a month at a 20% close rate, 167 customers is not reachable in the near term and the model needs changing.

## Formula

```
Break-even units = fixed costs ÷ (price per unit − variable cost per unit)
```

The denominator is contribution margin. Express the answer in customers or units — it is far easier to sanity-check than a revenue figure.

## Worked example

A SaaS business with £20,000 of monthly fixed costs.

- Price: £150/month. Variable cost to serve: £30/month.
- Contribution margin: £120 per customer per month.
- Break-even = £20,000 ÷ £120 ≈ 167 customers.
- Raising price to £180 lifts contribution to £150 → break-even falls to 134 customers.

**Takeaway:** A 20% price rise removed 33 customers from the break-even requirement — usually far easier than acquiring 33 more.

## Common mistakes

- Omitting founder salaries from fixed costs, which understates the real break-even.
- Forgetting that variable costs such as support tend to rise with volume.
- Expressing break-even only in revenue, which is harder to test against your funnel.
- Ignoring churn, which means gross additions must exceed break-even to stay there.

## Related tool

[Break-even calculator](https://skiporship.com/calculators/break-even)

## Related terms

- [Unit Economics](https://skiporship.com/glossary/unit-economics) — Unit economics are the direct revenues and costs associated with a single unit of your business — usually one customer — showing whether each one is profitable before overheads.
- [Gross Margin](https://skiporship.com/glossary/gross-margin) — Gross margin is the percentage of revenue left after the direct costs of delivering your product or service, before overheads like salaries, marketing and rent.
- [Burn Rate](https://skiporship.com/glossary/burn-rate) — Burn rate is the speed at which a company spends its cash reserves, usually expressed per month. Net burn is spending minus revenue; gross burn is total spending regardless of income.
- [Runway](https://skiporship.com/glossary/runway) — Runway is the number of months a company can continue operating before it runs out of cash, calculated by dividing cash reserves by net monthly burn.

## FAQ

**How do you calculate the break-even point?**

Divide total fixed costs by contribution margin per unit — the price minus the variable cost of serving one customer. The result is the number of units or customers needed to cover all costs.

**Why is break-even in units better than in revenue?**

A unit figure can be checked directly against your sales funnel. Knowing you need 167 customers tells you immediately whether your channels can realistically deliver that, which a revenue target does not.

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