The Break-Even Point: How to Know When You’re Losing Money

Most small business owners think they’re doing okay if the bank account isn’t empty. But the truth is, unless you know your break-even point, you might be losing money and not even realize it. Sales might look steady. Bills might be getting paid. But if your revenue isn’t covering both fixed and variable costs, you’re going backward—slowly and painfully. Knowing your break-even point is non-negotiable if you want to run a business that actually works.

What Is the Break-Even Point?

Your break-even point is the exact level of sales where your revenue = your total costs. At that point, you’re not making a profit—but you’re not losing money either. Everything earned after break-even is true profit. Everything before it is a liability.

The Formula

Break-Even Sales = Fixed Costs ÷ (1 – Variable Cost %)

Or, for product-based businesses:

Break-Even Units = Fixed Costs ÷ (Price per Unit – Variable Cost per Unit)

You don’t have to love math. But you do have to know your numbers.

Why Most Owners Don’t Know Their Break-Even

They don’t separate fixed and variable costs

They’re operating from the bank account, not the books

They confuse busy-ness with profitability

They don’t realize how slim their margins really are

They avoid looking because they’re afraid of the answer

Avoidance feels easier—until you can’t make payroll or pay taxes. Clarity is always cheaper than chaos.

The Two Types of Costs You Must Know

Fixed Costs

These are the expenses you pay regardless of how much you sell:

• Rent

• Salaries

• Insurance

• Software subscriptions

• Loan payments

Variable Costs

These rise with production or sales:

• Materials

• Packaging

• Commission payouts

• Shipping costs

• Payment processing fees

Until you know both, your break-even analysis will be off—and so will your decisions.

Example: A Real-World Break-Even Breakdown

Let’s say you run a consulting agency with:

• $10,000/month in fixed costs

• You charge clients $2,500/month

• Each client costs you $500/month in delivery (variable cost)

Your profit per client = $2,000

Break-even = $10,000 ÷ $2,000 = 5 clients

So until you’re serving five clients a month, you’re technically losing money—even if there’s cash in the account. That’s your baseline. From there, you can model your path to real profitability.

Why This Matters More Than You Think

1. It Kills the Illusion of “Almost There”

If you’ve ever said, “We’re close to turning a profit,” but can’t prove it—chances are, you’re not. Knowing break-even gives you a clear target to hit and exceed.

2. It Keeps You From Scaling Losses

If you’re losing $50 on every product, selling more won’t help—it’ll bankrupt you faster. Break-even analysis makes sure you fix pricing or cost issues before you grow.

3. It Helps You Set Smart Revenue Goals

“$1M in revenue” sounds exciting—but what if your break-even is $950K? That’s not scale. That’s survival. Set goals based on margins, not hype.

4. It Makes Hiring and Investment Decisions Easier

Thinking of hiring someone new or upgrading a system? Know how many more clients or sales you need to cover it. That’s real strategy—not guessing.

What to Do Once You Know Your Break-Even

• Monitor it monthly (or weekly during volatile seasons)

• Build it into your cash flow forecast

• Use it to evaluate pricing changes

• Teach it to your leadership team

• Recalculate if your cost structure changes

You don’t need to obsess over it—but you do need to track it.

Final Thoughts: Run the Numbers or Be Run Over by Them

You don’t have to be a financial expert to run a strong business. But you can’t afford to ignore your break-even point. It’s the line between building something sustainable—or blindly hoping it all works out.

👉 Schedule a profitability review if you want to run the numbers together, cut through the fog, and lead your business with clarity and confidence.

Guessing is expensive.

Knowing is power.

Let’s make sure you’re actually winning.