The break-even point is how much you need to sell in a month for the contribution from your sales to cover all your fixed costs. The formula is fixed costs for the month ÷ contribution per unit. If your fixed costs are $350 and each loaf you sell brings in $5.40, you need 65 loaves a month not to lose money. Below that you lose money; above it you start to earn. And if you want to pay yourself, add your pay to the fixed costs before dividing.
The formula
Break-even in units = fixed costs for the month ÷ contribution per unit
Contribution per unit is the price, before sales tax and after any commission, minus the variable cost of that unit: ingredients, packaging, gas or power for the batch, and waste. If you do not have it yet, start with contribution margin.
Always round up. If you get 64.8, you need 65: at 64 you are still short.
What counts as a fixed cost
A fixed cost is one you pay even in a month when you sell very little. In a small food business they are usually:
- Market pitch fees, or rent for a shared kitchen.
- The part of power, water and gas that does not depend on your batches.
- Phone and internet.
- Software subscriptions: card reader plan, website, ordering page.
- Paid social media ads.
- Replacing and maintaining equipment.
- Any fixed licence, registration or insurance costs that apply where you are; check your local rules or ask an accountant.
If you are not sure where a cost goes, fixed vs variable costs helps you sort them.
Worked example: sourdough
You sell sourdough loaves at a Saturday market and through preorders.
Contribution per loaf. A batch of 24 loaves uses $43.20 of flour, rye, seeds and salt, plus $7.20 of oven power. That is $50.40 ÷ 24 = $2.10 per loaf. The bag and label cost $0.50. Variable cost: 2.10 + 0.50 = $2.60. You sell at $8.00, so each loaf brings in 8.00 − 2.60 = $5.40.
Fixed costs for the month.
| Cost | Per month |
|---|---|
| Market pitch (4 Saturdays × $50) | $200 |
| Power not tied to batches | $45 |
| Phone and internet | $35 |
| Card reader plan and website | $30 |
| Equipment replacement fund | $40 |
| Total | $350 |
Break-even: 350 ÷ 5.40 = 64.8, so 65 loaves a month, about 16 a week.
Check: 65 × 5.40 = $351 of contribution, just above the $350 of fixed costs. From loaf 65 you are no longer losing money.
Break-even with your pay
At the basic break-even point the business does not lose money, but you worked for free. If you want to earn $1,500 a month, add it to the fixed costs:
(350 + 1,500) ÷ 5.40 = 342.6, so 343 loaves a month, about 86 a week.
That is the number that really matters. How to pay yourself helps you decide what figure to use.
Check that your hours allow it
A break-even point you cannot bake or sell is no use. Each batch of 24 loaves takes you 4 hands-on hours. 343 loaves is 343 ÷ 24 = 14.3, so 15 batches, and 15 × 4 = 60 kitchen hours a month. That may fit. Selling them is another matter: about 86 loaves every Saturday if everything goes through the market. If that is not realistic, you need another channel, another price or other products.
When you sell several products, it also matters which ones use up your hours. Profit per kitchen hour tells you which gets you to break-even fastest with the time you have.
If you sell several products
With several products there is no single contribution per unit. Use the contribution ratio: total contribution divided by sales.
Break-even in sales = fixed costs ÷ contribution ratio
With one product: the ratio is 5.40 ÷ 8.00 = 67.5%, and 350 ÷ 0.675 = $518.52 of sales. That is the same as 64.8 loaves × $8.00.
With several: if last month you sold $2,400 of bread and granola and total contribution was $1,560, your ratio is 1,560 ÷ 2,400 = 65%. You need 350 ÷ 0.65 = $538.46 of sales a month to cover your fixed costs.
Be careful: that ratio depends on your mix. If next month you sell more of the product that brings in less, the ratio drops and break-even rises. That is why it pays to review which products to keep, push or drop.
What moves the break-even point
Any change in price, variable cost or fixed costs moves it. With the numbers from the example:
| Change | Contribution per loaf | Break-even |
|---|---|---|
| As things are | $5.40 | 65 loaves |
| Flour goes up: variable cost $3.00 | $5.00 | 350 ÷ 5.00 = 70 loaves |
| You raise the price to $8.50 | $5.90 | 350 ÷ 5.90 = 59.3 → 60 loaves |
| You drop the website plan (fixed costs $320) | $5.40 | 320 ÷ 5.40 = 59.3 → 60 loaves |
A $0.40 rise in cost asks you for 5 more loaves a month just to stay where you were. That is why your costs need updating when ingredient prices change.
And your startup investment
The monthly calculation does not earn back what you spent to start. If you bought a bigger oven for $2,400 and want it paid back in 24 months, add 2,400 ÷ 24 = $100 to your fixed costs for that period:
(350 + 100) ÷ 5.40 = 83.3, so 84 loaves a month.
To build that list from the beginning, see how much it costs to start a small food business.
Break-even is the fourth test in how to know if your food product is profitable: the one that tells you whether your volume is enough.
Do it with the calculator
In the food cost calculator enter the recipe, packaging and price; with your hourly pay set to 0, the "you earn per unit" figure is the contribution you divide your fixed costs by.
Frequently asked questions
Does the break-even point include my pay?
The basic one does not: it only covers fixed costs, so at that point you are working for free. Also work out a break-even with your pay by adding what you want to earn each month to your fixed costs.
What if I sell several products at different prices?
Use the average contribution ratio: total contribution for the month divided by total sales. Divide your fixed costs by that ratio and you get the sales in dollars you need.
How often should I recalculate my break-even point?
Whenever a fixed cost changes, when you raise or lower prices, and when a major ingredient changes price. If nothing changes, every few months is enough.
Does my startup investment go into the break-even point?
Not in the basic monthly calculation. If you want to earn it back over a set time, divide the investment by the number of months and add that amount to your fixed costs.