business owners making business decisions

If you want to drive your business to make a profit, you’re going to need to know and understand your break even point. The phrase ‘break even point’ refers to the point at which your revenue equals your costs. Once you reach this point, any additional income generated each month is profit.

Calculating your break even point is vital for determining the level of sales you need to achieve to cover your costs and can aid you in making informed decisions about pricing your products or services, controlling your costs, and ultimately, improving your profitability.

In this article, we explore how to calculate your break even point and how to utilise this information to make better informed business decisions and grow your business.

How is break even point calculated? 

break even point formula


  1. First, calculate what you need to take home in order to meet all your living costs + the tax you are likely to pay on this sum = this is your gross drawings
  2. Your Gross Drawings + Overheads (i.e general running costs of the business) = Total Costs. Your calculation must be realistic and include a contingency figure for price increase and unforeseen costs.
  3. Work out your Gross Profit Margin (The percentage of profit that you make on each sale of your service or product after deducting the cost of producing it, known as “direct costs”). Note: We can help you to figure out which costs are direct costs and which are overheads.
  4. Total costs/Gross Profit Margin = Break Even Point

Struggling to make the calculation? Don’t worry! Few business owners are confident enough to try and calculate their own break even point. That’s why we’re here, armed with calculators, a long-lasting history with spreadsheets, and plenty of experience helping businesses like yours.

Help me calculate my break even point

If you’re a client of ours, you should already know your break even point! If you don’t, reach out to your Client Manager and we’ll work together to ensure you know your break even point and understand how to use it.

If you’re not a client, let’s book a free consultation to go through your business challenges, plans for the future and of course, calculate and help you understand your break even point!

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Okay, so you know your break even point. Now what? 

Once you have your break even point, you need to use it to make those all important business decisions to help your business recover, overcome challenges and dips, or push for growth. Here’s a few of our tips on what you can do once you have your figure:

1. Set sales targets

Most businesses are seasonable to some degree, so dividing the break even point by 12 will likely not give you an appropriate monthly target. If you have established that 35% of your turnover is made in the run up to Christmas, then your break even point for that quarter should be 35% of your annual target. Effectively to break even for the year, you need to make a bigger profit in some months to compensate for the loss in others. Set your targets (we have a blog on how set key performance indicators and targets here) to reflect this.

2. Can you tighten the belt a bit?

Take a look at some of your overheads – are you able reduce your costs anywhere? When was the last time you had a look at your utility bills? Run your business by the same standards you live by in your home, and make sure that you’re comparing costs to find the fairest price.

3. Can you increase your higher value services or products?

Pricing is a delicate balance between covering your costs and remaining competitive in your market. By knowing how many units you need to sell to break even, you can set prices that allow you to achieve profitability while still being attractive to your target market. When was the last time your reviewed your pricing and increased them? We have an article that shares our method for increasing prices without upsetting your customers here. 

4. Identify areas where you can control costs and reduce expenses to improve profitability 

The break even point can also be used as a benchmark for making decisions about controlling costs. If your break even point is too high, it may indicate that you need to find ways to reduce your costs. You could consider negotiating with suppliers for lower material costs, finding more affordable equipment, or streamlining processes to increase efficiency and reduce labor costs.

By keeping a close eye on your break even point and making strategic decisions about cost control, you’ll be better positioned to improve your overall profitability.helps in managing financial risks by identifying potential cash flow issues and taking proactive measures to mitigate them.