How to Calculate Break-Even for a Small Shop
Knowing your break-even point tells you exactly how many products you need to sell before your business starts making a profit.
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
The simple formula
Break-even units = Fixed Costs ÷ Contribution per Unit
Break-even revenue = Break-even Units × Selling Price
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
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.