How to Calculate Break-Even for a Small Shop

Knowing your break-even point tells you exactly how many products you need to sell (or how much revenue you need) before your business starts making a profit. Below that number, you are losing money. Above it, you are making money.

This guide walks you through the calculation step by step, with a real example that fits small shops and businesses.

What is the break-even point?

The break-even point is the level of sales where total revenue equals total costs. At this point, profit is exactly zero.

• Below break-even → you are losing money
• At break-even → you cover all costs but make no profit
• Above break-even → you make a profit

Why break-even matters more than "am I making sales"

It's easy for a shop owner to feel reassured just because money is coming through the till every day. But sales activity alone doesn't tell you whether the business is healthy — a shop selling 150 units a month when it needs 200 to break even is losing money steadily, even while appearing busy. Break-even reframes the question from "are we selling?" to "are we selling enough?", which is the number that actually determines whether the business survives.

The simple formula

Worked example – A small shop in Dar es Salaam

Imagine a small shop that sells a popular product:

• Fixed monthly costs (rent, salaries, electricity, internet): TZS 1,200,000
• Selling price per unit: TZS 15,000
• Variable cost per unit (product cost + packaging): TZS 9,000

Step 1: Calculate contribution per unit
15,000 − 9,000 = TZS 6,000

Step 2: Calculate break-even units
1,200,000 ÷ 6,000 = 200 units

Step 3: Calculate break-even revenue
200 × 15,000 = TZS 3,000,000

This means the shop needs to sell 200 units (or make TZS 3,000,000 in sales) every month just to cover costs. Any sales above that become profit.

Fixed costs vs Variable costs

Fixed costs stay roughly the same every month, regardless of how much you sell:

• Rent
• Salaries
• Electricity and internet
• Insurance
• Loan repayments

Variable costs increase with every unit you sell:

• Cost of the product itself
• Packaging
• Shipping or delivery (if charged per order)
• Payment processing fees
• Sales commission

Break-even with more than one product

Most small shops don't sell a single product, which makes a single break-even number harder to pin down exactly. A practical shortcut is to calculate break-even using your average selling price and average variable cost across your product range, weighted roughly by how often each item sells. It won't be perfectly precise, but it gives you a usable target — and you can refine it over time by tracking which products actually contribute most to covering your fixed costs.

Using break-even to set a sales target, not just a survival line

Once you know your zero-profit point, you can build a real target on top of it. If you want TZS 500,000 in profit on top of covering costs, simply add that amount to your fixed costs before dividing by contribution per unit. This turns break-even from a defensive number into a planning tool — a monthly sales goal you can actually track progress against, week by week.

What happens when your break-even point shifts

Break-even isn't a number you calculate once and forget — it moves whenever your costs or prices change. A rent increase, a new supplier price, or a decision to discount your product all shift the break-even point, sometimes without the owner noticing until the month's sales fall short. Rechecking your break-even point after any meaningful cost change is the difference between catching a pricing problem early and discovering it three months later when the cash reserve has already shrunk.

Common mistakes to avoid

• Forgetting some fixed costs (insurance, bank charges, or your own salary).
• Using an average variable cost that is too low.
• Calculating break-even once and never updating it when prices or costs change.
• Thinking break-even includes a profit target (it does not — it is the zero-profit point).

Want a faster answer?

Use our free Break-Even Calculator. Enter your fixed costs, selling price, and variable cost, and get the result instantly.

Frequently asked questions

Does break-even include a profit target?

No. It shows the point where profit is zero. To aim for a specific profit, add your desired profit to the fixed costs before dividing.

What if my contribution per unit is negative?

You are selling below your variable cost. You will lose more money with every sale. Raise your price or reduce variable costs before calculating break-even.

Should I recalculate break-even often?

Yes. Recalculate whenever your prices, costs, or product mix change.