What is Break-Even Analysis?
Learn what break-even analysis is, how to calculate your break-even point, and why lenders and investors care about this metric.
Break-even analysis determines the point at which your revenue equals your total costs — meaning you are neither making a profit nor losing money. Understanding your break-even point helps you set prices, plan growth, and demonstrate viability to lenders.
The Break-Even Formula
The basic break-even calculation is: Break-Even Point = Fixed Costs ÷ (Price per Unit - Variable Cost per Unit)
For example, if your monthly fixed costs are $10,000, you sell products for $50 each, and each product costs $30 to make, your break-even point is 500 units ($10,000 ÷ $20 contribution per unit).
Fixed vs. Variable Costs
Understanding your costs is essential for break-even analysis:
- Fixed costs: Expenses that stay the same regardless of sales — rent, insurance, salaries, loan payments
- Variable costs: Expenses that change with production or sales — materials, shipping, commissions, credit card processing fees
Break-Even in Dollars
If you sell multiple products or services, you may prefer to calculate break-even revenue rather than units. The formula is: Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio
The contribution margin ratio is (Revenue - Variable Costs) ÷ Revenue. If your contribution margin ratio is 40%, and fixed costs are $10,000, you need $25,000 in revenue to break even.
Quick Example
A restaurant with $15,000 in monthly fixed costs and a 30% contribution margin needs $50,000 in monthly revenue to break even ($15,000 ÷ 0.30 = $50,000).
Why Lenders Care About Break-Even
When reviewing loan applications, lenders want to know:
- How quickly you reach profitability after taking on new debt
- Whether your pricing strategy supports sustainable operations
- How much cushion exists between your current revenue and break-even point
- Whether new loan payments will push you below break-even
Using Break-Even for Decision Making
Beyond loan applications, break-even analysis helps you evaluate major decisions: Can you afford to hire another employee? Should you lower prices to increase volume? How many new customers do you need to justify a marketing spend?
Run break-even scenarios before making significant investments to understand the sales volume required to make them worthwhile.
Update your break-even analysis whenever your costs change significantly. A rent increase, new loan payment, or change in supplier pricing all affect your break-even point.
Ready to explore your options?
See what financing you qualify for in minutes — no impact to your credit score.
Related Articles
Cash Flow: Understanding Money Movement in Your Business
Learn what cash flow means, how lenders evaluate it, and why cash flow management is essential for business financing.
Read more →What is an Income Statement (P&L)?
Learn what an income statement is, understand its key components, and see why lenders review your P&L when evaluating loan applications.
Read more →Working Capital Loans: How to Fund Day-to-Day Operations Without Drowning in Debt
Understand working capital financing options, from lines of credit to term loans. Learn how to calculate your needs, compare products, and avoid common pitfalls.
Read more →Important Disclosure
Not Financial Advice: The information provided in this article is for general informational purposes only and does not constitute financial, legal, or professional advice. You should consult with qualified professionals before making any financial decisions.
No Guarantee of Financing: Liminal Lending Co. is a business loan marketplace that connects borrowers with third-party lenders. We are not a lender and do not make credit decisions. Submitting an application does not guarantee approval or funding. Loan terms, rates, and availability vary by lender and are subject to borrower qualifications and lender criteria.
Third-Party Lenders: All loan products are offered by independent third-party lenders. Liminal Lending Co. is an Independent Sales Organization (ISO) and receives compensation from lenders for successful referrals. Terms and conditions of any loan are between you and the lender.
Rate Information: Rates, terms, and fees mentioned in this article are estimates based on publicly available information and may not reflect current market conditions or specific lender offers. Actual rates depend on creditworthiness, business financials, and lender policies.
Information May Change: Financial markets, lending regulations, and economic conditions are subject to rapid change. While we strive to keep our content accurate and up-to-date, information in this article may become outdated. Always verify current rates, terms, program availability, and regulatory requirements with lenders and official sources before making financial decisions.