Break-Even Point for a Small Business: How to Work It Out

The plain answer is: divide fixed costs by the amount left from each sale after paying its variable cost. In the notation used here, units = fixed costs ÷ (selling price − variable cost per unit). The business.gov.au glossary supplies the underlying definitions; the formula is this article’s arithmetic derivation, not wording printed on the government page. It calculates a period-based break-even volume, not when cash will be available.

Start with the official definitions

The Australian Government’s glossary gives these exact definitions:

Break-even point – the point when a business's income equals its expenses.

Fixed cost – a cost that is not part of producing a good or service.

Variable cost – a cost that changes depending on the number of goods produced or the demand for the products or service.

Margin – the difference between the selling price of a good or service and the profit on the sale. Margin is generally shown as a gross margin percentage, which is the proportion of profit for each sales dollar.

The glossary defines the terms but does not print the break-even formula. Its fixed-cost and variable-cost definitions establish which costs belong in each part of the calculation. The margin definition provides the pricing context: the price must cover costs and leave a profit. The government’s cash-flow guidance similarly says, “Work out how much margin you need from your sales to cover your costs.”

Derive a formula you can reuse

Let:

• Q be the number of units sold
• P be the selling price per unit
• V be the variable cost per unit
• F be the fixed costs for the chosen period

At Q units, income is P × Q. Expenses are F + V × Q. At break-even, those two amounts are equal:

P × Q = F + V × Q

Subtract the variable costs from both sides:

P × Q − V × Q = F

Factor the unit values:

Q × (P − V) = F

Divide by the amount left per unit after variable costs:

Q = F ÷ (P − V)

Written as a reusable business formula:

Break-even units = fixed costs ÷ (selling price − variable cost per unit)

This is the article’s derivation from the official definitions, not a formula quoted from business.gov.au. The denominator is the amount from each sale available to contribute toward fixed costs. If the resulting volume is fractional and the unit cannot be divided, the teaching examples below round upward to the next whole unit.

The period and unit must stay consistent. A monthly calculation should use monthly fixed costs and a price for one month of output. A service calculation might use jobs, an ecommerce calculation might use orders, and a subscription calculation can use subscriber-months.

Selling price is an input, not something the formula invents. The government’s pricing guidance says, “Setting the right price is challenging. If you set it too high, you may lose customers. If it's too low, your profits can fall.” Its market-testing guidance says to ask customers what they want, which features matter, how much they spend on similar products or services and how many they are likely to buy, then test different price options to see what sells.

Three complete calculations

The case evidence used here contains published revenue, not the cost histories needed to calculate actual break-even dates. Every cost and price in the following one-month teaching calculations is therefore an assumption made for this article. None is a founder-reported cost, and none should be read as the actual break-even result for the linked case.

Service example

The model reference is 1M.chat’s Augustine Tours case, which records $54K a month, reported by the founder in June 2023.

For this service calculation, the article assumes:

• Fixed costs for the month: $4,000
• Selling price per service job: $200
• Variable cost per service job: $50

The amount left from each job after its variable cost is:

$200 − $50 = $150

Divide the assumed monthly fixed costs by that amount:

$4,000 ÷ $150 = 26.67

Because the teaching unit is one whole job, round upward:

27 service jobs

Under those assumptions, 27 jobs is the monthly break-even volume.

Ecommerce example

The model reference is 1M.chat’s Luna Nectar case, which records $50K a month, reported by the founder in June 2023.

For this ecommerce calculation, the article assumes:

• Fixed costs for the month: $6,000
• Selling price per order: $60
• Variable cost per order: $35

The amount left from each order after its variable cost is:

$60 − $35 = $25

Divide the assumed monthly fixed costs by that amount:

$6,000 ÷ $25 = 240 orders

The ecommerce calculation therefore produces an exact monthly break-even volume of 240 orders under the assumed inputs.

Subscription example

The model reference is 1M.chat’s Fullfunnel case, which records $50K a month, reported by the founder in October 2022.

For this subscription calculation, the article assumes:

• Fixed costs for the month: $5,000
• Monthly price per subscriber: $30
• Variable cost per subscriber-month: $8
• Unit: one subscriber-month

The amount left from each subscriber-month after its variable cost is:

$30 − $8 = $22

Divide the assumed monthly fixed costs by that amount:

$5,000 ÷ $22 = 227.27

Round upward to the next whole subscriber-month:

228 subscriber-months

The result is expressed in subscriber-months because that is the defined unit of this teaching calculation. It does not establish Fullfunnel’s actual subscriber count, revenue at break-even or break-even date.

Break-even is not the same as cash flow

Break-even answers whether income equals expenses for the selected period. Cash flow answers when money is moving into and out of the business. The government’s cash-flow statement page says:

A cash flow statement tracks all the money flowing in and out of your business.

It also gives the direct warning required for a break-even calculation:

A cash flow forecast is an estimate of your future sales and costs. It is a useful tool to help you understand if you will have enough income to cover your costs. This will help you prevent cash shortages and avoid debt.

That forecast is different from the unit formula. The break-even equation contains no line for the timing of receipts or payments. The cash-flow page separately lists incoming items such as sales and debtor receipts, and tells businesses to calculate the monthly balance with this sentence:

Calculate the monthly cash balance by subtracting the total outgoing cash from the total incoming cash.

A business can therefore use one set of figures to show income equalling expenses while a separate cash forecast predicts a shortage. To keep that forecast usable, the same page instructs:

If you use estimated costs, label and explain them clearly. You'll also need to clearly state if your figures include or exclude goods and services tax (GST).

The break-even volume is only the first calculation. The cash forecast shows whether the money is present when it is needed.

Why break-even speed can differ: cash first, then variable costs

The case revenue figures do not contain enough cost history to rank the businesses’ actual break-even speed. For comparing businesses, read the figures in two stages.

First, examine the cash buffer. The glossary defines working capital as:

Working capital – the cash available to a business for day-to-day expenses.

The government’s cash-flow guidance says, “If your business or industry has known quiet periods, then plan to have enough cash to get through them.” A break-even calculation may show when sales cover expenses, but it does not by itself show whether the business can fund the period before reaching that volume.

Second, examine variable cost as a share of selling price. Using the assumed inputs above:

• Service example: $50 ÷ $200 = 25%
• Ecommerce example: $35 ÷ $60 = about 58%
• Subscription example: $8 ÷ $30 = about 27%

These percentages are calculations from the examples’ assumptions, not costs reported by the cases. The ecommerce example has the highest variable-cost share, leaving $25 from each assumed $60 order toward fixed costs. The service example leaves $150 from each assumed $200 job.

A higher variable-cost share leaves less of each sale available to cover fixed costs, so the same revenue figure buys fewer units. Cash-buffer planning establishes whether the business can survive while that volume builds; variable-cost share determines how much of each new sale remains to move toward break-even.

The 1M.chat case library provides the published founder-reported revenue and source context. Treat those figures as dated milestones—not as proof of break-even—and pair any break-even exercise with clearly labelled cost assumptions and a separate cash-flow forecast.