At what revenue do you turn profitable?
Find your break-even revenue, the exact date you start making money and the safety margin that protects you from a downturn.
Break-even point simulator
Find the revenue you must reach to cover your costs, the date you turn profitable and your margin of safety.
Costs that move with activity: purchases, raw materials, commissions
Costs independent of activity: rent, salaries, insurance
The fixed/variable split is a management convention; mixed costs must be allocated. Activity is assumed regular across the year.
Your break-even point
Quick answer
At what revenue does a business become profitable?
A business turns profitable once its revenue exceeds its break-even point, which equals fixed costs ÷ contribution margin ratio. Example: with €120,000 of fixed costs and a contribution margin of 40% of revenue, break-even is 120,000 ÷ 0.40 = €300,000 of revenue. Every euro sold above it adds €0.40 to profit; every euro short of it costs €0.40.
- Break-even revenue
- Fixed costs ÷ CM ratio
- Break-even date (days)
- Break-even ÷ revenue × 365
- Margin of safety
- Revenue − break-even
Reviewed by Samuel Hayot, chartered accountant (Ordre des experts-comptables), last updated
Break-even point, break-even date, margin of safety: definitions
The break-even point is the minimum revenue at which a business does not lose money: at that level the contribution margin exactly covers fixed costs and operating profit is zero. In French accounting it is called the seuil de rentabilité or chiffre d’affaires critique.
The break-even date (point mort) is the same threshold expressed in time: the day of the year on which it is reached if sales are evenly spread. A break-even date of 15 June means that January to mid-June sales pay the fixed costs, and everything sold afterwards is pre-tax profit.
The margin of safety is the gap between actual (or budgeted) revenue and break-even. Expressed as a percentage of revenue, it shows how far sales can fall before the business makes a loss, the resilience indicator bankers and shareholders look at first.
Break-even formulas
- Contribution margin (CM)
- CM = revenue excl. VAT − variable costs
- Contribution margin ratio
- CM ratio = CM ÷ revenue excl. VAT
- Break-even revenue (€)
- BEP = fixed costs ÷ CM ratio
- Break-even date (days)
- Break-even date = BEP ÷ annual revenue × 365
- Break-even in units
- BEP (units) = fixed costs ÷ (unit price − unit variable cost)
- Margin of safety
- MoS = revenue − BEP ; MoS ratio = MoS ÷ revenue
- Operating leverage
- Leverage = CM ÷ operating profit
All amounts are excluding VAT. The model assumes the contribution margin ratio stays stable as volume changes and fixed costs do not move within the activity range studied (no new hire or new premises).
Calculate your break-even point in 5 steps
The hard part is not the formula but classifying costs. This is the method we use with clients, starting from the income statement.
- 1
Start from the income statement (or the forecast)
Use the last closed financial year or, for a start-up, the first-year forecast. Work excluding VAT and over 12 months; annualise if the financial year is shorter or longer.
- 2
Isolate variable costs
Costs that move with sales: goods and materials consumed (adjusted for stock movements), direct subcontracting, commissions, shipping and packaging, card and payment fees, production energy.
- 3
Isolate fixed costs
Costs incurred whatever the activity level: rent, permanent staff salaries and social charges, director pay, insurance, subscriptions and software, professional fees, depreciation, and loan interest if you reason on current profit.
- 4
Split mixed costs
Some costs have a fixed and a variable part (phone, vehicles, energy, temp staff). Allocate them with a simple key kept constant from year to year: it is a management convention, not an accounting rule.
- 5
Compute the CM ratio, break-even and break-even date
Divide contribution margin by revenue to get the ratio, then fixed costs by that ratio. Convert break-even into a date using your real seasonality: if 40% of revenue comes in December, the break-even date will not fall on the theoretical day.
Worked example: an SME with €500,000 revenue
Take a trading business with €500,000 revenue excl. VAT, €300,000 of variable costs (goods consumed, transport, commissions) and €120,000 of fixed costs (rent, two employees, insurance, depreciation). These are the simulator default values.
| Indicator | Calculation | Result |
|---|---|---|
| Contribution margin | 500,000 − 300,000 | €200,000 |
| CM ratio | 200,000 ÷ 500,000 | 40% |
| Break-even revenue | 120,000 ÷ 0.40 | €300,000 |
| Break-even date | 300,000 ÷ 500,000 × 365 | Day 219, early August |
| Operating profit | 200,000 − 120,000 | €80,000 |
| Margin of safety | 500,000 − 300,000 | €200,000 (40% of revenue) |
| Operating leverage | 200,000 ÷ 80,000 | 2.5 |
Reading: the business can lose 40% of its revenue before making a loss, which is comfortable. A leverage of 2.5 means a 10% revenue drop cuts profit by 25% (from €80,000 to €60,000), and a 10% rise lifts it by as much. If the owner plans a hire costing €45,000 fully loaded, break-even moves to 165,000 ÷ 0.40 = €412,500: €112,500 of extra sales just to pay for it.
How to read your margin of safety
There is no legal standard, but these management benchmarks help position the simulator result.
| Margin of safety ratio | Reading | Priority action |
|---|---|---|
| Negative | Below break-even: every month deepens the loss | Recovery plan: prices, fixed costs, cash |
| 0 to 10% | Fragile: one lost client or a weak quarter is enough | Secure cash, postpone any new fixed cost |
| 10 to 25% | Sound but sensitive to the economy | Work on the margin ratio before growing |
| Above 25% | Resilient model, able to absorb a shock | Invest, hire, negotiate financing |
Indicative benchmarks from SME management-control practice; they vary with the sector, seasonality and available cash.
Best practices to lower your break-even point
- Recalculate break-even before any decision that adds a fixed cost (hire, lease, equipment lease, software): how much more must I sell to pay for it?
- Raise the margin ratio before the volume: +2 points on a 40% CM ratio lowers break-even by 4.8% without selling more.
- Track break-even monthly by comparing cumulative revenue with the critical revenue, rather than once a year at year-end.
- Compute break-even per activity or site when margins differ: a global figure can hide a loss-making activity.
- Include director pay in fixed costs: a business that is profitable only because its owner is unpaid has not reached break-even.
- Test a 10 to 20% revenue drop scenario to size the cash needed in a downturn.
Mistakes that distort the calculation
Confusing gross margin and contribution margin
Gross margin only deducts purchases. Contribution margin deducts every cost that moves with revenue (transport, commissions, subcontracting). Using gross margin understates break-even.
Mixing VAT-inclusive and VAT-exclusive figures
Revenue and costs must be excluding VAT. VAT-inclusive revenue inflates the margin ratio and gives a break-even point that is too low, hence an unrealistic sales target.
Forgetting stock movements
What counts is goods consumed, not goods bought in the year. A large restock at year-end distorts the margin ratio if the stock movement is ignored.
Ignoring seasonality
The simulator break-even date assumes regular sales. For a shop making 30% of its revenue in December, the real break-even date can fall several months later.
Confusing profitability and cash
Passing break-even does not guarantee cash: customer payment terms, stock and loan capital repayments consume cash. Complete it with a working-capital calculation.
Frequently asked questions about break-even
What is the break-even point formula?
Break-even = fixed costs ÷ contribution margin ratio, where CM ratio = (revenue excl. VAT − variable costs) ÷ revenue excl. VAT. Example: €60,000 of fixed costs and a 30% CM ratio give a break-even of €200,000 revenue.
What is the difference between break-even point and break-even date?
The break-even point is an amount of revenue in euros; the break-even date is the same threshold expressed as a date or number of days: break-even ÷ annual revenue × 365. A €300,000 break-even for €500,000 revenue gives day 219, early August.
How do you calculate break-even in units?
Divide fixed costs by the unit contribution (selling price excl. VAT − unit variable cost). With €50,000 of fixed costs, a €25 price and a €15 variable cost, you must sell 50,000 ÷ 10 = 5,000 units.
Which costs are fixed and which are variable?
Variable: goods consumed, subcontracting, commissions, transport, packaging. Fixed: rent, permanent staff, director pay, insurance, subscriptions, professional fees, depreciation. Mixed costs (energy, vehicles, phone) are split with a stable key.
Should director pay be included in fixed costs?
Yes. In a company (SARL, SAS, EURL) the director’s pay and social contributions are a fixed cost. In a sole proprietorship, where profit pays the owner, add a target income to fixed costs to find the revenue that lets you earn it.
What is a good margin of safety?
Above 25% of revenue, the model can absorb a serious shock. Between 10 and 25% it is sound but sensitive. Below 10%, losing a key client or one weak quarter is enough to make a loss. These benchmarks are indicative and sector-dependent.
What does a high operating leverage mean?
Operating leverage (CM ÷ operating profit) measures how sensitive profit is to revenue. A leverage of 4 means a 10% change in revenue moves profit by 40%. It is high close to break-even and in businesses with heavy fixed costs.
How do you calculate break-even for a new business?
Use the forecast: estimate first-year fixed costs (rent, salaries, insurance, software, depreciation of investments) and the expected margin ratio on sales. The result is the revenue to reach in year one, which the bank compares with your market study.
Does break-even take tax and loans into account?
No. Classic break-even targets zero operating profit, before tax and before loan capital repayments (only interest is a cost). For a cash break-even, add capital repayments to fixed costs and remove depreciation.
Sources and references
Reading your break-even point
The break-even point is the revenue at which your contribution margin (revenue minus variable costs) exactly covers your fixed costs: above it you make a profit, below it a loss. Expressed in days, it becomes the date in the year when your business starts earning money. The closer that date, the more resilient your model.
The figures that drive your break-even
- Contribution margin = revenue − variable costs
- Break-even = fixed costs / contribution margin rate
- Break-even date = the day in the year you cover your fixed costs
- Safety margin = how far your revenue sits above break-even
- Operating leverage = contribution margin / operating result
Why run this simulator?
A clear break-even point lets you:
- Set a realistic revenue target before committing to a fixed cost (hire, lease, equipment).
- Measure how much your revenue can drop before you fall into the red.
- Understand why, near break-even, a small revenue swing moves your result so much.
- Decide between cutting fixed costs or improving your contribution margin.
A chartered accountant to steer your margins
Hayot Expertise builds the management-control tools (break-even, contribution margin, dashboards) that turn your accounting into real-time decisions.