The break even point sounds technical, but the idea is very simple.
It is the point where you are no longer losing money, but you are not making a profit yet either.
Once you understand this clearly, pricing decisions, business planning, and financial confidence all become easier.
This guide explains break even in plain English and shows how to calculate it using a simple tool.
What does break even actually mean?
Breaking even means your income exactly matches your costs.
Not more. Not less.
At break even:
- All expenses are covered
- You are not losing money
- You are not making profit yet
Anything above break even is profit.
Anything below break even is a loss.
That is it.
Why the break even point matters
If you do not know your break even point, you are guessing.
Knowing it helps you:
- Set minimum pricing
- Decide if a project is worth taking
- Understand how much you need to sell
- Avoid working hard while losing money
Many small businesses and freelancers fail not because they lack clients, but because they never cross break even consistently.
The two types of costs you need to know
To calculate break even, you need to understand two cost types.
Fixed costs
These are costs that stay the same regardless of how much you sell.
Examples:
- Rent
- Software subscriptions
- Insurance
- Internet and phone bills
- Accounting fees
You pay these even if you earn nothing.
Variable costs
These change based on how much work you do or how much you sell.
Examples:
- Payment processing fees
- Materials
- Contractor or freelancer payments
- Shipping costs
The more you sell, the higher these costs become.
Break even in one simple sentence
Your break even point is:
Total fixed costs divided by profit per unit or per hour
Once you sell enough to cover fixed costs, you have broken even.
A simple example
Imagine this:
- Monthly fixed costs: $2,000
- You earn $100 per hour
- Variable costs are minimal
To break even, you need to earn $2,000.
That means:
- 20 billable hours to break even
- Hour 21 is profit
- Hour 10 is still a loss
This applies whether you sell hours, products, or services.
Why break even is different from profit margin
Break even answers one question:
“How much do I need to sell before I stop losing money?”
Profit margin answers a different one:
“How much do I earn after covering all costs?”
You must reach break even before profit margins matter.
Common break even mistakes
These are the most common errors people make.
- Forgetting fixed costs
- Underestimating variable costs
- Assuming all working hours are billable
- Setting prices without checking break even
- Confusing revenue with profit
Revenue alone does not pay bills. Profit does.
How to calculate break even without spreadsheets
You do not need Excel or accounting software.
You just need:
- Your fixed costs
- Your price per unit or hour
- Your variable cost per unit if applicable
Use our Break Even Point Calculator:
Calculate your break even point
This tool helps you:
- Enter fixed costs
- Add pricing details
- See exactly how much you need to sell to break even
It removes guesswork and gives you a clear target.
How freelancers should use break even
If you are a freelancer or consultant, break even tells you:
- The minimum hours you must bill each month
- Whether a low paying client is sustainable
- When to raise rates or reduce costs
If you are fully booked but still below break even, pricing is the problem, not workload.
How small businesses should use break even
For product or service businesses, break even helps you:
- Set minimum prices
- Decide if discounts are safe
- Understand how many sales you actually need
- Plan growth realistically
Growth before break even usually makes losses bigger, not smaller.
Final thoughts
Break even is not a goal. It is a checkpoint.
You do not aim to stay there. You aim to pass it and move into profit as quickly and safely as possible.
Once you know your break even point, you stop guessing and start making decisions with clarity.
Our Break Even Point Calculator:
Calculate your break even point