How break-even works
Every sale does two jobs. First it pays for itself, covering the materials and fees that only exist because the sale happened. Whatever is left over goes towards the costs you pay regardless.
Break-even units = fixed costs ÷ (price − variable cost)
That gap between price and variable cost is the contribution, and it is the number worth knowing by heart. Sell at $25 with $10 of materials and each sale contributes $15. With $6,000 of fixed costs to cover, you need 400 sales before you have made a penny.
Which costs go where
Getting this split right matters more than precision in the figures. The test is simple: what would this cost be if you sold nothing at all this month?
| Fixed, you pay it anyway | Variable, only if you sell |
|---|---|
| Rent, workspace, storage | Materials and ingredients |
| Insurance and licences | Packaging and labels |
| Software subscriptions | Payment and platform fees |
| Equipment and tools | Shipping and postage |
| Your own wages | Piece-rate or contract labour |
| Market stall booked in advance | Commission on a sale |
Leaving your own wages out of fixed costs is the most common way to get a comforting answer that means nothing. If you need to live on this, it is a cost.
When break-even is impossible
If your price is at or below your variable cost, there is no volume that saves you. Every additional sale increases the loss. The calculator says so plainly rather than showing an enormous number, because "you need 40,000 sales" and "this can never work" are different messages.
There are only two ways out: raise the price, or lower what each unit costs to produce. Selling harder is not one of them.
Use it as a feasibility test
The number on its own is trivia. It becomes useful the moment you hold it against reality.
- Compare it to your actual capacity. If break-even needs 400 units a month and you can physically make 250, the plan fails on arithmetic before it fails in the market.
- Compare it to your best month. A break-even point above anything you have ever achieved is a signal to change the model, not to try harder.
- Test a price rise. Contribution is the lever. Raising a $25 price to $28 lifts contribution from $15 to $18 and drops break-even from 400 units to 334, a 17% easier target from a 12% price change.
- Check your margin of safety. If you expect 450 sales against a break-even of 400, sales can fall 11% before you are losing money. That is thin.
A worked example
A small candle business planning a month:
- Fixed costs: workshop rent $400, insurance $45, software $30, and $2,000 for your own time. $2,475.
- Candles sell for $28 and cost $11 in wax, jars, fragrance, and packaging.
- Contribution: $17 a candle, a 61% contribution margin.
- Break-even: 146 candles, or $4,088 of revenue.
If a good month is 180 candles, you make $585 profit and have a 19% margin of safety. If a realistic month is 120, you are $435 short and the business is quietly funded by not paying yourself properly. Both are useful things to know in advance rather than in arrears.
Where a calculator stops helping
This models a plan. It cannot tell you what your fixed costs actually came to last month, whether your variable cost estimate is right, or how close to break-even you really are right now.
Argo Books tracks the real figures so the next version of this calculation uses measurements instead of guesses. It runs on your own computer and it is free to start.