Break-Even Analysis: The Minimum Sales Volume You Need to Survive
Every business has a break-even point—the minimum sales needed to cover all costs and stop losing money. Below this, you're running a deficit. Above this, you're profitable. This guide teaches you to calculate yours and understand what it means for your business sustainability.
Understanding Fixed vs. Variable Costs
Break-even analysis depends on understanding two cost types:
Fixed Costs (Same Every Month)
Rent/studio space, insurance, website, phone, software. Whether you sell 1 unit or 100, these stay the same. Typical: $500–$2,000/month.
Variable Costs (Per Unit Sold)
Materials, labor, packaging, shipping. Increase with every unit sold. Typical: 30–60% of selling price.
Contribution margin = Selling price – Variable cost per unit
Calculating Your Break-Even Point
The Formula
Break-Even Units = Fixed Costs / Contribution Margin Per Unit
Example:
Selling price: $50/unit
Variable cost: $20/unit
Contribution margin: $50 - $20 = $30/unit
Fixed costs/month: $1,500
Break-even units = $1,500 / $30 = 50 units/month
You must sell 50 units monthly to cover costs.
Reality check: If you can only make 40 units/month, you're operating at a loss. Solution: raise price, lower costs, or reduce fixed expenses.
What This Means For Your Business
Your break-even point tells you:
✓ Minimum sales to not lose money
✓ How sensitive your business is to price/cost changes
✓ Where you need to be to actually profit
If your break-even is higher than you can realistically produce: Your business model is unsustainable. Change something.
Know Your Break-Even. Run a Sustainable Business.
TrueCraft calculates your break-even point automatically based on your costs.
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