Break-even point: how to calculate all 3 types, with examples

How many clients does your company need to close this month just to avoid losing money? If the answer took more than ten seconds, or came out as "around fifteen, I think", you are in good company. Most managers know their revenue by heart and guess their break-even point.

Guessing is expensive. Of the Brazilian companies founded in 2017, only 37.9% were still operating five years later, according to IBGE's Business Demography survey, released in December 2024. Not every closure comes from bad math, of course. But running a business without knowing where the line between loss and profit sits is an efficient way to cross it in the wrong direction without noticing.

The good news: the math fits in one spreadsheet cell. The hard part is choosing which costs go into it, and that is where the three types of break-even point come in.

The break-even point is the sales volume at which revenue covers exactly all costs, with neither profit nor loss. To calculate it, divide the period's fixed costs by the unit contribution margin (price minus variable costs per unit). The result is how many units you need to sell. To get the figure in revenue, divide fixed costs by the contribution margin ratio.

How to calculate the break-even point: the base formula

Every variation of the calculation starts from the same structure:

• In units: BEP = fixed costs ÷ (selling price − unit variable cost)
• In revenue: BEP = fixed costs ÷ contribution margin ratio

The contribution margin ratio is the unit margin divided by the price. If you have not yet split fixed from variable costs, start there: our post on contribution margin shows how to classify each line. Without that split, any break-even point is fiction.

Example: a digital marketing agency

Picture a Brazilian agency charging an average retainer of R$ 5,000 per client. Each client creates costs that exist only because that client exists: R$ 300 in tax on the invoice (6% in this example), R$ 900 in freelancers and dedicated tools, and R$ 250 in sales commission. Variable cost per client: R$ 1,450. Contribution margin: R$ 3,550, or 71% of the retainer.

Fixed costs add up to R$ 56,800 a month: team payroll, partner pay, rent, software, the accountant and R$ 1,800 of depreciation on computers and furniture.

Break-even point = 56,800 ÷ 3,550 = 16 clients. In revenue, 56,800 ÷ 0.71 = R$ 80,000 a month. With 15 clients the agency loses money. From the 17th on, each new client adds R$ 3,550 of profit.

Accounting, cash and economic break-even: what is the difference?

All three use the same formula. What changes is the numerator, meaning which costs you ask the margin to cover. Each one answers a different question.

Accounting break-even: "am I at zero on the income statement?"

This is what we just calculated. It includes every fixed cost and expense on the income statement, including depreciation, which is an expense with no cash outflow. It tells you whether the company makes an accounting profit. For the agency, 16 clients.

Cash (financial) break-even: "does the bank account close the month positive?"

Here the question is about money in the account. You remove costs that do not leave the bank (depreciation, amortization of intangibles) and add outflows that do not show up as expenses, such as the principal portion of a loan payment.

Say the agency repays R$ 4,100 a month of loan principal. Cash fixed costs: 56,800 − 1,800 + 4,100 = R$ 59,100. Cash break-even: 59,100 ÷ 3,550 = 16.6, so 17 clients (R$ 83.2k). A company can show an accounting profit with 16 clients and still end the month with negative cash.

Economic break-even: "is this business worth keeping?"

This one adds opportunity cost: the minimum return the partners demand on the capital they put into the company. If the business only breaks even, they would be better off with the money invested elsewhere, without the risk of running an operation.

The agency partners invested R$ 420k and require 2.5% a month, above fixed-income yields precisely because of the risk. That is R$ 10,500 a month. Economic break-even: (56,800 + 10,500) ÷ 3,550 = 18.96, or 19 clients (R$ 94.8k). The number many owners call "the target" is actually this one.

Type	Question it answers	Fixed cost adjustment	Agency result
Accounting	Is the company profitable?	All fixed costs, with depreciation	16 clients / R$ 80.0k
Cash	Does cash close positive?	Remove depreciation, add debt principal	17 clients / R$ 83.2k
Economic	Does the business pay for its capital?	Add the minimum return partners require	19 clients / R$ 94.8k

In practice, the cash version is the one that keeps owners up at night, and the economic version is the one that should drive the sales target. The accounting version is a useful reference, but it is rarely the number a manager needs day to day.

How to calculate break-even for e-commerce (and where ad spend fits)

In e-commerce, the calculation hides a trap that almost no guide mentions: the ad budget. Depending on how you classify it, the break-even point moves by almost 80%.

A supplements store has an average order value of R$ 180. Per order, it pays R$ 72 for the product, R$ 14 in subsidized shipping, R$ 9 in payment fees, R$ 12.60 in tax (7% in this example) and R$ 3.40 for packaging. Variable cost: R$ 111. Contribution margin: R$ 69 per order. Fixed costs (team, warehouse, platform, ERP): R$ 41,400.

• Ignoring ads: 41,400 ÷ 69 = 600 orders, or R$ 108k. Far too optimistic for a store that sells almost everything through ads.
• Ads as a fixed cost (R$ 18k monthly budget): 59,400 ÷ 69 = 861 orders, or R$ 155k.
• Ads as a variable cost (average CPA of R$ 30 per order): 41,400 ÷ 39 = 1,062 orders, or R$ 191k.

Which one is right? It depends on how the store buys traffic. If the budget is fixed and sales fluctuate, treat it as fixed. If spend scales with volume, as in conversion campaigns with a stable CPA, treat it as variable. The classic mistake is to calculate without ads, celebrate 700 orders, and find out at month-end that ads ate the profit. The same logic shows up in break-even ROAS, which is the break-even point seen from the campaign side.

What if the company sells several products?

The formula assumes a single price and a single margin. With a product mix, use the average contribution margin, weighted by each item's share of sales.

Example: if 60% of sales carry a 40% margin and 40% carry a 25% margin, the average ratio is 0.6 × 40% + 0.4 × 25% = 34%. With R$ 51k in fixed costs, break-even is R$ 150k. This math breaks when the mix changes: a promotion that sells more of the low-margin item pushes the break-even point up, even as revenue grows. That is why it pays to redo the calculation every month, not just during annual planning.

Margin of safety: how much you can lose before going into the red

On its own, the break-even point is just a line. The margin of safety tells you how far you are from it:

Margin of safety = (current revenue − break-even revenue) ÷ current revenue

If the agency in our example has 22 clients (R$ 110k), its accounting margin of safety is (110 − 80) ÷ 110 = 27%. It can lose up to 6 clients before making a loss. On the economic basis, the cushion drops to 14%: with 3 fewer clients, the agency lands exactly at the point where the partners stop being paid for the risk.

For businesses with unstable revenue, such as agencies with short contracts or seasonal stores, a margin below 15% is usually a warning sign. It is not a textbook rule, just prudence: one bad month is enough to cross the line.

Three mistakes that distort the calculation

1. Forgetting the owner's salary. If the owner works in the business and does not get paid, the break-even point comes out low and false. Put a market-rate salary into fixed costs.
2. Using list price. Discounts, coupons and returns lower the real price. Use the effective average order value, net of discounts.
3. Calculating once and filing it away. A rent increase, a new hire, a change in shipping rates: each one moves the line. Break-even is a monthly indicator, not a feasibility study.

Frequently asked questions

How do I calculate the break-even point in Excel?

Put fixed costs in B1, price in B2 and unit variable cost in B3. In B4, use =B1/(B2-B3) for the result in units and =B1/((B2-B3)/B2) for the revenue figure. Round up with ROUNDUP, because you cannot sell a fraction of a client.

How do I calculate the break-even point in units?

Divide the period's fixed costs by the unit contribution margin, which is the price minus the variable costs of each unit. With R$ 30k in fixed costs and a R$ 60 margin per unit, you need 500 units a month.

What is the difference between accounting, cash and economic break-even?

Accounting break-even uses all fixed costs, including depreciation, and marks zero profit. Cash break-even excludes non-cash expenses and includes debt principal, marking zero cash flow. Economic break-even adds the minimum return partners require and shows whether the business justifies the capital invested.

Is operating break-even the same as accounting break-even?

In most materials, yes: both use operating costs and expenses to reach zero operating profit. Some authors leave financial expenses out of the operating version and keep them in the accounting one. Pick a definition once and stick with it so you can compare month to month.

What should I do if break-even is above my revenue?

There are three paths: raise prices, lower variable costs or cut fixed costs. Simulate each one before acting. In the agency example, raising the retainer by 5% drops break-even from 16 to 15 clients, while cutting rent by 5% barely moves the number.

A number that belongs on the dashboard, not in the accountant's spreadsheet

Break-even tends to show up in the business plan and then disappear. That is a waste, because few indicators translate the entire operation into such a simple question: how many sales are left before this month breaks even? Managers who track it weekly negotiate prices, hire and cut ad spend with a different level of confidence. It also makes more sense alongside the other financial indicators for small businesses.

The obstacle is usually pulling the data together: variable costs in the ERP, ad spend in Meta Ads and Google Ads, revenue in the CRM or a spreadsheet. With Sherlok, you connect these sources and ask in plain language, "how many orders are left to break even this month, counting ad spend?". The answer comes back calculated from your operation's real numbers, no formulas required.