Module 9: Break-Even

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🎯 Our goal in this module is to introduce you to Break-Even and show you how to find the Break-Even Point for your business.
Break-Even is the tool that you’ll use to figure out when your company will start becoming operationally profitable and when you’ll begin “making money”.

You can calculate your Break-Even Point in “dollars” (how many dollars in sales) or in “units” (how many units of your product/service you must sell).

Let’s work through a simple Break-Even calculation in dollars. 

To calculate your Break-Even Point in dollars, the formula is:
Operating ExpensesGross Profit Margin=Break Even Point\frac{\text{Operating Expenses}}{\text{Gross Profit Margin}}=\text{Break Even Point}

Operating Expenses are the costs of running your business (also called “fixed costs”).

Gross Profit Margin is simply Gross Profit expressed as a percentage:

Gross ProfitSales=Gross Profit Margin\frac{\text{Gross Profit}}{\text{Sales}}=\text{Gross Profit Margin}

(Gross Profit divided by Sales = Gross Profit Margin)

Your Break-Even Point is where you are neither losing money, nor making money.

Important: You will want to make sure that your business will have the capacity to grow Sales well beyond your Break-Even Point! 😁

Quick Example

Let’s walk through a Break-Even calculation example with actual numbers.

Step 1: Calculate Gross Profit Margin

Remember the formula...
Gross ProfitSales=Gross Profit Margin\frac{\text{Gross Profit}}{\text{Sales}}=\text{Gross Profit Margin}

So, if Sales=$10,000\text{Sales}=\$10,000 and Cost of Sales=$2,000\text{Cost of Sales}=\$2,000, then:

Gross Profit=$10,000$2,000=$8,000\text{Gross Profit}=\$10,000-\$2,000=\$8,000


Gross Profit Margin=Gross ProfitSales=$8,000$10,000=0.8 or 80%\text{Gross Profit Margin}=\frac{\text{Gross Profit}}{\text{Sales}}=\frac{\$8,000}{\$10,000}=0.8\ \text{or} \ 80\%

Step 2: Calculate Break-Even Point

Remember the formula...
Operating ExpensesGross Profit Margin=Break Even Point\frac{\text{Operating Expenses}}{\text{Gross Profit Margin}}=\text{Break Even Point}

If Operating Expenses=$2,500\text{Operating Expenses}=\$2,500, then:

Break Even Point=Operating ExpensesGross Profit Margin=$2,5000.8=$3,125\text{Break Even Point}=\frac{\text{Operating Expenses}}{\text{Gross Profit Margin}}=\frac{\$2,500}{0.8}=\$3,125

So, your Break-Even Point is $3,125.

Question: What does this mean? Answer: Until you reach $3,125 in Sales, you will not have enough Gross Profit to pay for all of your Operating Expenses—so your Net Profit will be negative (in other words, you will be losing money).

Note: It’s not uncommon for startups to operate at a loss for a while—months, even years in some cases—so you need to be sure that you will have enough funding to cover your expenses during this period.

Question: How will you survive the period when you won’t have enough money from sales to pay your monthly bills? Answer: You can either borrow money or find equity funding from investors (or both).

Good News: In our example above, as your Sales increase from $3,125 to $10,000, you will keep 80 cents from every $1 in Sales as Gross Profit.  So, by the end of the month, you will have made $5,500 in Net Profit.

⚡Action Step

Find your Break-Even Point in our Financial Projections template.

We are currently creating additional instructions and tutorial videos demonstrating exactly how to do this.  Stay on the lookout.

🗂️ Resources

Scroll left-to-right across the table below to view all columns. Click on any item in the leftmost column to open that specific resource page.
Business Plan Core Template
Business PlanBizActually
A no-frills Business Plan template in Google Sheets. (Created by our Team)
Financial Projections
FinancialsCash FlowProfit & LossBalance SheetBreak-EvenBizActually
A Google Sheet to organize and calculate your financial projections. (Created by our Team)

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