Break-even point formula and calculator
Reviewed Sep 28, 2026 Internal Revenue Service Statistics of Income, tax year 2023 (sole proprietorships) How we verify
Not a substitute for the advice of an attorney. General information; laws vary by state. Terms of use
The break-even point formula is break-even units = fixed costs / (price per unit - variable cost per unit), and break-even revenue = fixed costs / contribution margin ratio. For restaurants and drinking places filed as sole proprietorships, cost of goods sold was 37.5% of business receipts in tax year 2023 (IRS Statistics of Income, computed by InterObservers). So a restaurant with $20,000 of fixed costs a month breaks even at $32,000 in sales a month, and at $38,000 after one $45,000 hire.
Break-even calculator
Example: $20,000 fixed costs a month, variable costs 37.5% of sales
$32,000 in sales a month
- Contribution margin ratio: 62.5% of each sales dollar (100% minus 37.5% variable costs)
- With one more person at $45,000 a year: $38,000 in sales a month, $6,000 more (pay only)
Variable cost share from IRS Statistics of Income, tax year 2023, industry aggregate (Restaurants (full & limited service) and drinking places, sole proprietorships), retrieved Sep 28, 2026. Method reviewed Sep 28, 2026. Enter your numbers above: your result replaces this example.
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What to do next
If the new break-even is out of reach, change the price, the costs or the timing of the hire before you make the offer.
- Average profit margin by industryWhat small businesses in your industry keep out of each dollar (IRS)
- Hiring your first employee: the steps and your state’s rulesBefore the new salary becomes a fixed cost
- Offer letter templatePut the pay you planned for in writing
Break-even point formula
The break-even point is the level of sales where total revenue equals total costs: profit is zero, and every sale after it adds its contribution margin to profit.
- Break-even units = fixed costs / (price per unit - variable cost per unit)
- Contribution margin ratio = (price per unit - variable cost per unit) / price per unit, or 1 - (variable costs / sales)
- Break-even revenue = fixed costs / contribution margin ratio
- Units for a target profit = (fixed costs + target profit) / (price per unit - variable cost per unit)
- Margin of safety = current sales - break-even sales (as a share: divided by current sales)
Fixed costs and variable costs
Fixed costs stay the same when sales go up or down in a normal month: rent, base salaries, insurance, software, loan payments. Variable costs rise with each sale: materials, goods for resale, packaging, card processing fees, sales commissions, hourly labor that you schedule only when there is work. A salaried new hire is a fixed cost, which is why the calculator adds the hire to fixed costs; pay that moves with sales (commissions, piece rates) belongs in variable costs.
How to lower your break-even point
The formula has three inputs, so there are three ways to reach break-even sooner.
- Cut fixed costs. Every $100 less in monthly fixed costs lowers break-even sales by $100 divided by the contribution margin ratio ($143 at a 70.0% ratio).
- Raise the price. A higher price with the same cost per unit widens the contribution margin, so fewer units cover the fixed costs. Check how many customers you could lose at the new price.
- Lower the variable cost per unit. Cheaper supplies, lower card or delivery fees, or less waste leave more of each sale to pay the fixed costs.
Timing matters too: a new hire or a bigger lease raises the break-even point from the first month, while the extra sales it brings may take longer to arrive.
Worked examples
Each example is computed with the same code as the calculator.
Price and cost per unit. A coffee counter has $8,000 of fixed costs a month, sells a cup for $5.00 and spends $1.50 on beans, milk and the cup. Contribution margin: $5.00 - $1.50 = $3.50 a cup, or 70.0% of the price. Break-even: $8,000 / $3.50 = 2,286 cups a month (rounded up), or 77 a day over 30 days open, and $8,000 / 70.0% = $11,429 in sales.
Variable costs as a share of sales, with one more hire. A restaurant has $20,000 of fixed costs a month and uses the IRS cost of goods sold share for its industry, 37.5% of sales, as its variable costs. Contribution margin ratio: 100% - 37.5% = 62.5%. Break-even: $20,000 / 62.5% = $32,000 in sales a month. A new hire at $45,000 a year (pay only) adds $3,750 a month of fixed costs, so the break-even moves to $23,750 / 62.5% = $38,000: $6,000 more in sales every month.
With a target profit. The same coffee counter wants $2,000 of profit a month before taxes. Units: ($8,000 + $2,000) / $3.50 = 2,858 cups a month (rounded up), or ($8,000 + $2,000) / 70.0% = $14,286 in sales.
Price not above the variable cost. A product sells for $12.00 and costs $12.00 to make and ship. The contribution margin is $0.00, and the formula would divide $5,000 of fixed costs by zero: there is no break-even point at any volume. The calculator says so instead of giving a number. The fix is a higher price or a lower cost per unit.
Cost of goods sold, payroll and rent by industry (IRS, tax year 2023)
The 20 detailed industries where sole proprietorships paid the most payroll in tax year 2023, with each cost as a share of business receipts. Pick any of the 149 industries and sectors with a cost of goods sold share in the calculator to start from it.
| Industry | Cost of goods sold | Payroll | Rent |
|---|---|---|---|
| Specialty trade contractors | 31.2% | 11.1% | 1.6% |
| Restaurants (full & limited service) and drinking places | 37.5% | 18.8% | 6.3% |
| Administrative and support services | 15.7% | 11.2% | 2.6% |
| Construction of buildings | 45.0% | 10.5% | 1.2% |
| Personal and laundry services | 9.8% | 6.4% | 10.3% |
| Truck transportation | 9.3% | 5.2% | 3.3% |
| Offices of dentists | 4.7% | 25.6% | 4.2% |
| Legal services | 8.8% | 10.4% | 3.8% |
| Management, scientific, and technical consulting services | 6.3% | 5.8% | 1.7% |
| Other miscellaneous services | 15.8% | 7.0% (combined to protect taxpayer data) | 2.6% |
| Food and beverage stores | 59.9% | 10.0% | 3.5% |
| Offices of physicians (except mental health specialists) | 4.6% | 12.1% | 3.3% |
| Miscellaneous store retailers | 46.6% | 6.9% | 4.5% |
| Social assistance | 2.0% | 10.5% | 4.1% |
| Insurance agencies and brokerages | 2.5% | 7.5% | 3.1% |
| Home health care services | 4.0% | 17.6% | 5.2% |
| Offices of real estate agents, brokers, property managers, and appraisers | 9.0% | 3.7% | 2.2% |
| Other financial investment activities (investment advice) | 50.7% | 3.5% | 1.0% |
| Miscellaneous repairs | 30.7% | 9.4% | 3.3% |
| Nursing and residential care facilities | 3.4% | 24.1% | 4.8% |
Source: IRS, Statistics of Income Division, Sole Proprietorship Returns 2023, March 2026 (Tables 1 and 2, tax year 2023), retrieved Sep 28, 2026. Shares computed by InterObservers from the IRS totals: each cost line divided by business receipts. “Small sample”: the IRS says the estimate should be used with caution because of the small number of sample returns; “combined to protect taxpayer data”: data combined to prevent disclosure of taxpayer information.
Payroll and cost of goods sold overlap: the IRS says “Payroll is the sum of salaries and wages plus the cost of labor reported as part of cost of sales and operations.” Do not add the three columns together.
How the calculator works
- The math. Fixed costs per year are divided by 12. Break-even revenue is fixed costs divided by the contribution margin ratio; break-even units are fixed costs divided by the contribution margin per unit, rounded up to the next whole unit. Per day is the monthly figure divided by the days open you enter.
- One more hire. The yearly pay you enter, plus the employer taxes and benefits percentage if you enter one, divided by 12, is added to fixed costs. There is no default pay and no default tax rate: the numbers are yours. For reference, the IRS on the employer share of Social Security and Medicare:
The current tax rate for Social Security is 6.2% for the employer and 6.2% for the employee, or 12.4% total. The current rate for Medicare is 1.45% for the employer and 1.45% for the employee, or 2.9% total.
(IRS Topic no. 751, checked Sep 28, 2026). Benefits, insurance and state taxes are not in these rates: use your own total. Rules and taxes differ by state: your state’s employment rules. - Industry presets. The cost of goods sold share (IRS “cost of sales and operations” divided by business receipts) of sole proprietorships in the industry, tax year 2023, from IRS Statistics of Income (IRS, Statistics of Income Division, Sole Proprietorship Returns 2023, March 2026), retrieved Sep 28, 2026. Payroll and rent shares are shown as reference lines. Values the IRS marks as a small sample are labeled; values it does not disclose are not filled.
- Industry totals, not a typical business. Each share is the industry's total cost divided by its total receipts, computed by InterObservers; a business of your size can differ a lot.
- Owner pay is not in the figures. The IRS: “Salaries paid to owners are neither deducted as wages paid on Schedule C nor included as wages received on Form 1040, U.S. Individual Income Tax Return.” (IRS SOI Bulletin). So payroll shares leave out what a sole proprietor pays themselves.
- Estimates from a sample. The IRS: “Since the data presented in this article are estimates based on a sample of returns filed, they are subject to sampling error.” (IRS SOI Bulletin).
- The data file. All 152 industries and sectors with their shares and flags: industries.json.
- What it leaves out. Taxes on profit, loan principal, seasonality, several products with different margins (use an average margin weighted by your sales mix) and the time it takes to reach the sales.
The figures on this page are general information, not financial or tax advice. See how we check the data.
Questions people ask
What is the break-even point formula?
Break-even units = fixed costs / (price per unit - variable cost per unit). Break-even revenue = fixed costs / contribution margin ratio, where the ratio is (price - variable cost) / price, or 1 minus variable costs as a share of sales. Use the same period (a month or a year) for fixed costs and sales.
What is the contribution margin?
The part of each sale left after its variable costs: price minus variable cost per unit (for example $5.00 - $1.50 = $3.50). As a share of the price it is the contribution margin ratio (70.0% here). That is the money that pays the fixed costs; once they are covered, it is profit.
How much more do I need to sell to hire one more person?
Divide the monthly cost of the hire by your contribution margin ratio. With a 62.5% ratio, a $45,000 yearly salary ($3,750 a month, before employer taxes and benefits) needs $6,000 more in sales every month just to break even. The calculator does this with your own pay figure and, if you enter it, your employer taxes and benefits.
What is the difference between break-even units and break-even revenue?
They are the same point measured two ways: units counts what you must sell, revenue is the sales in dollars. Businesses with one main product or an average price per job can use units; businesses with many prices usually work in revenue with variable costs as a share of sales.
Does the break-even point include profit?
No. At the break-even point profit is zero: sales cover the fixed and variable costs and nothing more. To plan for a profit, add it to the fixed costs: units for a target profit = (fixed costs + target profit) / (price per unit - variable cost per unit), and sales = (fixed costs + target profit) / contribution margin ratio. For example ($8,000 + $2,000) / $3.50 = 2,858 units a month (rounded up) for $2,000 of profit before taxes. The calculator does this when you enter a target profit.
Where do the industry percentages come from?
From IRS Statistics of Income tables of sole proprietorship tax returns (Schedule C) for tax year 2023: cost of goods sold, payroll and rent divided by business receipts, computed by InterObservers from the IRS totals. They are industry totals, not a typical business, and a sole proprietor's own pay is not in payroll. Source: IRS SOI nonfarm sole proprietorship statistics.
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Checked Sep 28, 2026 · How we verify every rule · Report an error
General information, not legal advice. Not a substitute for the advice of an attorney. This page is for general information only and isn’t legal, financial or tax advice. Laws vary by state and change; check the official source or talk to a qualified professional about your situation. Report an error