Break-Even Analysis: The Key to Business Success
- Future Accounting
- Oct 27
- 3 min read
Written by: Melissa Cunliffe (CA)
Master your numbers with break-even analysis and boost your profits
Whether you’re launching a new venture or managing an established business, using break-even analysis is essential. It’s one of the most powerful financial tools you can use to answer a critical question:
“How much do I need to earn just to cover my expenses?”
Many business owners feel confident about their sales or bookings but aren’t sure whether those earnings are truly covering costs. This is where break-even analysis becomes invaluable.
What is break-even analysis?
Your break-even point is the moment when total revenue equals total expenses. At this stage, your business isn’t generating a profit, but it’s not losing money either.
Break-even analysis helps you calculate exactly when you move from “just covering costs” to “making profit.”
How to calculate your break-even point in revenue
There are two common ways to use break-even analysis:
By units sold – ideal for product-based businesses
By total revenue – especially useful for service-based or hourly billing businesses
Formula for break-even revenue:
Break-even revenue = Fixed costs ÷ Contribution margin ratio
Where:
Fixed costs = expenses that don’t change with sales volume (e.g., rent, salaries, subscriptions)
Contribution margin ratio = (Revenue – Variable costs) ÷ Revenue
Break-even analysis example for service businesses
Imagine you’re a freelance consultant.
Monthly fixed costs: $4,000 (rent, software, insurance, and a VA retainer)
Average project revenue: $2,000
Variable costs per project: $400 (outsourced research, tools, travel)
Step 1: Calculate contribution margin.
Contribution margin = $2,000 – $400 = $1,600
Contribution margin ratio = $1,600 ÷ $2,000 = 0.80 (80%)
Step 2: Apply the formula.
Break-even revenue = $4,000 ÷ 0.80 = $5,000
This means you need $5,000 in monthly revenue to break even. At $2,000 per project, that’s 2.5 projects per month. Everything earned beyond that is pure profit.
Why knowing your break-even point matters
Understanding your break-even analysis allows you to:
Set realistic monthly income targets
Plan cash flow and budgeting with confidence
Price your services appropriately
Decide when to invest in new expenses
Test the impact of business changes before making them
In short, break-even analysis helps you make informed, confident decisions.
How break-even analysis changes over time
Your break-even point is not fixed. It shifts as your business evolves. Some common factors include:
Increases or decreases in costs
Adjustments to pricing models
Hiring new staff or contractors
Adding new services or tools
Business restructuring or scaling
That’s why it’s smart to revisit your break-even analysis regularly, especially when you’re growing or investing in change.
How we help clients with break-even analysis
We work closely with our clients to:
Calculate their break-even point using real business data
Model how pricing or cost changes affect profitability
Develop tailored financial plans and revenue targets
Provide the clarity and confidence needed to make better business decisions
Break-even analysis is more than a calculation—it’s the foundation for long-term success.
Take control of your business with break-even analysis
Understanding your break-even analysis is about more than covering costs—it’s about creating a clear path to profit. Don’t leave your financial success to chance.
Book an appointment with us today and let’s calculate your break-even point together so you can make smarter, more profitable business decisions.
Disclaimer
This article does not constitute financial advice and is for general information only. It does not take into account any individual’s personal objectives, situation or needs, and is not intended as professional advice. Any similarity to an individual’s personal circumstances and the examples provided in this article is purely coincidental. Any person acting upon such information without receiving specific advice, does so entirely at their own risk.
Authorisation under an Australian Financial Services Licence (AFSL) is not required in the provision of this article and the author plus Future Accounting Group Pty Ltd is not acting in its capacity as an Australian Financial Services Licence holder
Liability limited by a scheme approved under professional standards legislation.
