Break-Even Analysis: A Beginner's Guide
Break-even analysis answers the most important question any new business can ask: how many units (or subscribers, or clients) do I need to cover all my costs?
Below that number, you lose money. Above it, every additional sale is profit. It takes 10 minutes to calculate and can save you from launching a business that was never going to work.
Here's how to do it, step by step, using a candle subscription box as the example.
What Is Break-Even?
Break-even is the point where your revenue exactly equals your total costs. Below that point, you're losing money. Above it, you're profiting. It's the most important number for any new business because it tells you the minimum you need to survive.
Step 1: Identify Fixed Costs
Fixed costs are expenses you pay regardless of how many units you sell:
- Website hosting + Shopify: $79/month
- Email marketing (Mailchimp): $30/month
- Storage unit for inventory: $120/month
- Insurance: $60/month
- Lisa's time (valued at $2,000/month)
Total fixed costs: $2,289/month
Step 2: Calculate Variable Cost Per Unit
- 3 candles per box (cost $4 each): $12
- Packaging + tissue paper + sticker: $3.50
- Shipping (average): $8
- Payment processing (3%): $1.17
Total variable cost per box: $24.67
Step 3: Set Your Price
Lisa prices her subscription at $39/month. Contribution margin: $39 – $24.67 = $14.33 per box.
Step 4: Calculate Break-Even
Break-even = Fixed costs ÷ Contribution margin
$2,289 ÷ $14.33 = 160 subscribers.
Lisa needs 160 subscribers to break even. At 161 subscribers, she starts making $14.33/month in profit per additional subscriber.
Step 5: Reality Check
Is 160 subscribers realistic? For a brand-new subscription box with no audience, reaching 160 subscribers might take 3–6 months of marketing. Lisa's plan is to start with Instagram and TikTok content about candle-making, offer a first-month discount ($29), and aim for 50 subscribers in month one.
At 50 subscribers, she'd lose about $1,572/month. At 100, she'd lose $856. She needs to survive those early months financially before hitting break-even. This is exactly why doing the analysis now matters. she can plan for the runway she needs.
Beyond Break-Even: The Profit Zone
| Subscribers | Monthly Revenue | Monthly Profit |
|---|---|---|
| 100 | $3,900 | –$856 |
| 160 (break-even) | $6,240 | $0 |
| 200 | $7,800 | $577 |
| 300 | $11,700 | $2,010 |
| 500 | $19,500 | $4,876 |
Frequently Asked Questions
What is the break-even formula?
Break-even units = Fixed costs ÷ (Selling price – Variable cost per unit). The result tells you how many units you need to sell to cover all costs.
How long does it take a new business to break even?
Most small businesses take 6–18 months. Online businesses with low fixed costs can break even faster. Capital-intensive businesses (restaurants, manufacturing) often take 2–3 years.
What if my break-even number seems too high?
You have three options: raise your price, lower your variable costs, or lower your fixed costs. Often a combination of small adjustments across all three makes the biggest impact.