What Is Break-Even Analysis?
Break-even analysis tells you the exact point where your total revenue equals your total costs — no profit, no loss. Every unit sold beyond this point generates profit. Every unit below it means you’re losing money.
For small business owners in Africa — whether you’re selling products at a market, running a salon, or operating an online store — this is one of the most important numbers to know.
The Break-Even Formula
Break-Even Units = Fixed Costs ÷ (Selling Price − Variable Cost per Unit)
The difference between selling price and variable cost is your contribution margin — the amount each sale contributes toward covering fixed costs.
A Practical Example
Imagine you run a small bakery:
- Monthly fixed costs: Rent R8,000 + Electricity R1,500 + Staff R12,000 + Insurance R500 = R22,000
- Selling price per cake: R150
- Variable cost per cake: Ingredients R60 + Packaging R10 = R70
- Contribution margin: R150 − R70 = R80
Break-even: R22,000 ÷ R80 = 275 cakes per month (about 10 per day)
Use our Break-Even Calculator to run your own numbers.
Why It Matters
Pricing Decisions
If your break-even point seems too high, you either need to:
– Increase your selling price
– Reduce variable costs (find cheaper suppliers)
– Reduce fixed costs (negotiate rent, reduce staff)
Business Viability
Before starting a business, run a break-even analysis. If you need to sell 1,000 units per day in a neighbourhood of 500 people, it’s not viable.
Growth Planning
As your business grows, fixed costs change (bigger premises, more staff). Recalculate your break-even regularly.
Combining with Other Metrics
- Use our Profit Margin Calculator to understand your margins
- Track business expenses with our Budget Planner
- If you need funding, calculate repayments with our Business Loan Calculator
Related Tools
- Break-Even Calculator — Find your break-even point
- Profit Margin Calculator — Understand your margins
- Business Loan Calculator — Plan financing
- Budget Planner — Track business expenses
Filed under: Business