Ask a small business owner how much they need to sell each month to break even and you will often get a pause, then a guess. It is one of the few numbers that genuinely changes decisions, and most people running businesses do not have it.
It takes about twenty minutes to work out.
The two kinds of cost
Everything you spend falls into one of two categories, and the split is the whole exercise.
Fixed costs do not change with how much you sell. Rent, insurance, salaried staff, software subscriptions, your accountant, loan repayments. You pay them in a quiet month and a busy one.
Variable costs move with sales. Materials, subcontractors paid per job, delivery, payment processing fees, commission, direct labour billed by the hour.
Some costs are partly both. Electricity has a standing element and a usage element. Do not agonise over these. Assign them to whichever they mostly resemble, since precision here changes the answer very little.
The calculation
Step one: total your monthly fixed costs. Take annual figures and divide by twelve for anything paid yearly, and include what you need to pay yourself. Leaving your own income out produces a break-even point at which you personally earn nothing, which is not a useful target.
Step two: work out your contribution margin. For a typical sale, take the price and subtract the variable costs of delivering it. What remains contributes toward fixed costs.
Expressed as a percentage of price, this is your contribution margin ratio. A €1,000 job with €400 of variable costs has a €600 contribution and a 60% ratio.
Step three: divide. Fixed costs divided by the contribution margin ratio gives break-even revenue.
€9,000 of monthly fixed costs at a 60% ratio means €15,000 of monthly revenue to break even. Below that you are losing money regardless of how busy you feel.
You can also express it in units. Fixed costs divided by the contribution per unit gives the number of sales required. For a business selling one main thing, this is the more intuitive form.
What it changes
It makes pricing concrete. A 10% price cut does not reduce profit by 10%. It comes almost entirely out of contribution margin. In the example above, dropping the price to €900 cuts contribution from €600 to €500, which raises break-even revenue substantially. Discounting is far more expensive than it looks, and this calculation is the clearest way to see it.
It makes fixed costs visible. Every new subscription, every salary, every lease raises the bar you must clear every month, permanently. Businesses drift into trouble by adding fixed costs during good periods and discovering the new floor during a slow one.
It tells you whether growth helps. If your contribution margin is thin, more sales bring you to break-even slowly and a downturn hurts quickly. If it is fat, volume matters more than cost control. These lead to different strategies.
It sizes your risk. The gap between current revenue and break-even revenue is your margin of safety. Knowing it is 15% versus 60% should change how much fixed cost you are willing to add.
Where people get it wrong
Leaving out their own salary. The most common error, and it produces a target that keeps the business alive while the owner is not paid.
Treating everything as fixed. Businesses that classify all costs as fixed conclude they need far more revenue than they do, and often price too high or panic unnecessarily.
Calculating once. Costs change. Recalculate quarterly, and always after adding a fixed cost.
Using an average sale that does not exist. If you sell things with very different margins, calculate separately by category. A blended average across a 70% margin service and a 15% margin product line describes nothing you actually sell.
Forgetting seasonality. Annual break-even is fine for a stable business. If half your revenue arrives in two months, you need to know the monthly position and how much cash carries you through the quiet ones.
Getting the inputs
The calculation is trivial. Assembling the inputs is what stops people, because fixed costs live in a bank statement, variable costs live in the accounts, and nobody has an afternoon to separate them.
This is where connected tooling earns its cost. Mirage Cloud connects to Qonto and Pennylane among other French tools, and its finance agent is scoped to costs, margins and budgets, which puts the split within reach without a manual exercise.
The categorisation still needs your judgement, since only you know which costs would actually stop if sales stopped. But it turns a day of spreadsheet work into an afternoon.
The one thing to take away
Work out your monthly break-even revenue this week, and write it somewhere you will see it.
It converts "are we doing alright" into a question with an answer, and it makes every subsequent decision about pricing, hiring and spending measurably better.
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