Break-Even
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The break-even point is the sales volume at which your total revenue exactly equals your total costs — you are neither making a profit nor a loss. Every unit sold beyond the break-even point contributes directly to profit. For small business owners, knowing the break-even point is essential for pricing decisions, setting sales targets, and evaluating business viability.

Break-Even Units = Fixed Costs ÷ Contribution Margin Per Unit. Contribution Margin Per Unit = Selling Price Per Unit − Variable Cost Per Unit. For break-even in dollars: Break-Even Revenue = Break-Even Units × Selling Price Per Unit. You can also express this as: Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio, where Contribution Margin Ratio = Contribution Margin Per Unit ÷ Selling Price.

Fixed costs remain constant regardless of sales volume — examples include rent, insurance, annual software fees, and salaried employees. Variable costs change directly with each unit produced or sold — examples include raw materials, packaging, shipping, credit card processing fees, and hourly labor. Knowing which costs are fixed vs. variable is the key first step in break-even analysis.

Contribution margin is the amount left from each sale after paying variable costs. It "contributes" to covering fixed costs and then to profit. For example, if you sell a product for $50 and variable costs are $25, the contribution margin is $25 per unit. A higher contribution margin means you reach break-even faster and retain more profit from each additional sale.

Work backwards from a target: decide how many units you can realistically sell, then calculate the minimum price needed to break even. If Break-Even Units = Fixed Costs ÷ (Price − Variable Cost), you can solve for Price: Price = (Fixed Costs ÷ Target Units) + Variable Cost. This is your minimum viable price — the actual price should be higher to generate profit.

A break-even point is "good" when it represents a sales volume you can realistically achieve well within your business cycle. If breaking even requires selling more than your market can absorb, or takes longer than your cash reserves allow, you need to either reduce fixed costs, increase prices, or reduce variable costs. LLCs and small businesses should aim to break even within the first 6–18 months of operation.

The LLC structure itself does not change the break-even calculation, but it can affect costs that feed into it. Forming an LLC adds one-time setup costs and annual state fees (fixed costs). If you elect S-Corp taxation, owner salary requirements affect variable or fixed cost allocation. For tax planning purposes, your break-even analysis should include estimated self-employment or payroll tax costs, not just operating expenses.