Your Break-Even Number: The Finish Line Every Month Has

The formula

Break-even revenue = Monthly fixed costs ÷ Gross margin %

Fixed costs: what you pay whether or not you sell — rent, insurance, salaries including your own pay, software, loan payments. Gross margin: the share of each sales dollar left after the direct cost of delivering the sale (materials, direct labor, processing fees). The division is the insight: at a 40% margin, each revenue dollar contributes only 40 cents toward the fixed bills — so the bills get covered by revenue equal to two and a half times their size.

Worked example

A small service company carries $12,000/month of fixed costs (including the owner's $5,000 salary) at a 40% gross margin.

Break-even = $12,000 ÷ 0.40 = $30,000/month. Across 22 working days, that's $1,364 per working day — a concrete daily target instead of an abstract monthly hope.

Now the number goes to work:

• Reading a slow month: $27,000 of revenue isn't "a bit slow" — it's a $3,000 revenue shortfall, which at 40% margin means the month fell $1,200 short of covering its own bills. Measured, not vibes.
• Pricing a new fixed cost: a $900/month software-and-vehicle bundle raises break-even by $900 ÷ 0.40 = $2,250 of additional required revenue, every month, forever. Fixed costs are cheap to sign and expensive to feed.
• Valuing margin: improving margin from 40% to 45% (a price increase, a supplier renegotiation) drops break-even from $30,000 to $26,667 — the finish line moves $3,333 closer without cutting a single expense. Margin moves the line multiplicatively; cost-cutting moves it dollar-for-dollar-divided-by-margin. This is why the Price Increase Impact Calculator is usually the most powerful tool on this site.

Compute yours in the Break-Even Revenue Calculator.

The owner-pay honesty rule

The most common way this number gets falsified is by leaving the owner's pay out of fixed costs. A break-even that only balances because you work for free isn't a break-even — it's a measurement of how much of your life the business consumes without paying for it. Put your real living number in. If the resulting break-even looks unreachable, that's not a formatting problem; it's the business model asking for a redesign — margin, overhead (see the overhead guide), or offer.

Where this math goes wrong

• Blended-margin blindness. If your product lines have very different margins, one blended number can mislead — a month heavy in low-margin work needs more revenue than the average suggests. Model lines separately when they diverge widely.
• "Fixed" costs that creep. Utilities, card fees, and admin overtime rise gently with volume. Recheck the fixed-cost total quarterly, and every time you sign anything recurring.
• Confusing break-even with cash. A month can cross break-even on paper while the cash arrives 45 days later. Pair this number with your cash runway — they answer different questions and you need both.
• Treating the line as the target. Break-even is survival, not success. The real monthly target is break-even plus deliberate profit — reserves, growth, and a return on the risk of owning the thing.