Break-even point: when do you become profitable?
Introduction
At what point does your business become profitable? How much do you need to invoice each month to cover your costs? These questions are at the heart of business management, whether you're self-employed or running an SME.
The break-even point is the indicator that answers these questions. It represents the minimum turnover you need to achieve for your revenue to exactly cover your costs, with neither loss nor profit. Below this threshold, your business is loss-making. Above it, it generates profit.
Calculating your break-even point is not just a theoretical exercise. It's a practical management tool that helps you assess the financial health of your business, set realistic sales targets and anticipate the impact of your decisions: rent increases, recruitment, investment, pricing changes.
This guide explains how to calculate your break-even point with simple formulas, practical examples and advice for using it in your day-to-day management.
📌 Summary (TL;DR)
The break-even point corresponds to the minimum turnover needed to cover all your fixed and variable costs. It's calculated from the contribution margin and allows you to determine when your business becomes profitable. Knowing this break-even point helps you set sales targets, assess the impact of your decisions and manage your business with greater peace of mind.
📚 Table of contents
What is the break-even point?
The break-even point represents the level of turnover at which your business generates neither loss nor profit. It's the point at which your revenue exactly covers all your costs.
In practical terms: below this threshold, you're losing money. Above it, you start to generate profit.
This calculation is based on three key elements: your fixed costs (rent, salaries, insurance), your variable costs (raw materials, commissions) and your turnover.
For Swiss self-employed workers and SMEs, knowing this threshold allows you to manage your business with clarity and anticipate financial needs.
Why calculate your break-even point?
Calculating your break-even point allows you to manage your business with precise, quantified targets. You know exactly how much you need to invoice to cover your costs.
This calculation helps you make informed decisions: hiring, investing in a new tool, increasing your prices or reducing certain costs. You also anticipate difficult periods and adjust your sales strategy accordingly.
For a freelancer, it prevents working at a loss. For an SME, it's an essential indicator of financial health.
To go further in business management, consult our guide on the 5 financial indicators to assess your SME's health.
The components of the calculation
Calculating the break-even point is based on three essential components that you must identify precisely in your accounts.
First, fixed costs: these costs remain constant regardless of your level of activity. Next, variable costs: they vary in proportion to your turnover or production volume.
Finally, the contribution margin: it represents what remains after deducting variable costs, and is used to cover your fixed costs and then generate profit.
Understanding these three elements is essential for correctly calculating your break-even point.
Fixed costs
Fixed costs are the costs you must pay each month, regardless of your level of activity or sales.
In Switzerland, they typically include:
Rent for your office or premises
Fixed salaries (yourself or your employees)
Professional insurance (liability, accident)
Software subscriptions (accounting, invoicing like BePaid, CRM)
Equipment depreciation
Recurring administrative costs
Correctly identifying your fixed costs is crucial: they form the basis of your break-even point calculation.
Variable costs
Variable costs increase or decrease according to your volume of activity. The more you sell, the higher these costs.
Practical examples:
Raw materials and supplies
Sales commissions
Delivery or transport costs
Ad hoc subcontracting
Consumables related to production
Unlike fixed costs, if you make no sales, these costs are zero or almost zero. This distinction is essential for calculating your contribution margin and determining your break-even point accurately.
Contribution margin
The contribution margin represents what remains after deducting variable costs from your selling price.
Simple formula:
Contribution margin = Selling price – Unit variable costs
This margin is used to cover your fixed costs. Once fixed costs are covered, each additional franc becomes profit.
This margin is often expressed as a percentage of the selling price:
Contribution margin rate = (Contribution margin / Selling price) × 100
This rate is the key element for calculating your break-even point in turnover.
How to calculate your break-even point: the formulas
Once you've identified your fixed costs, variable costs and contribution margin, you can apply the break-even point calculation formulas.
Three complementary approaches exist: calculation in turnover (in CHF), in volume (number of units or services) and in number of days of activity.
Each provides a different perspective and helps you set concrete, measurable targets to reach your break-even point.
Turnover formula
The main formula for calculating your break-even point in Swiss francs:
Break-even point (CHF) = Fixed costs / Contribution margin rate
Step by step:
Calculate your contribution margin rate in %
Divide your annual fixed costs by this rate (expressed as a decimal)
Example:
Annual fixed costs: 60,000 CHF
Contribution margin rate: 40% (0.40)
Break-even point = 60,000 / 0.40 = 150,000 CHF
You need to achieve 150,000 CHF in turnover to reach your break-even point.
Volume formula (units)
If you sell quantifiable products or services, calculate the number of units needed to reach your break-even point:
Break-even point (units) = Fixed costs / Unit contribution margin
Example:
Annual fixed costs: 60,000 CHF
Unit selling price: 200 CHF
Unit variable cost: 80 CHF
Unit margin: 120 CHF
Break-even point = 60,000 / 120 = 500 units
You need to sell 500 products or deliver 500 services to cover your costs.
Break-even point in days
To visualise your break-even point over time, convert it into number of days of activity:
Break-even point (days) = (Break-even point / Projected annual turnover) × 365
Example:
Break-even point: 150,000 CHF
Projected turnover: 200,000 CHF
Break-even point = (150,000 / 200,000) × 365 = 274 days
You reach your threshold in early October. This information facilitates sales planning and cash flow management throughout the year.
Complete calculation example
Let's take the case of Sophie, a freelance graphic designer in French-speaking Switzerland.
Context:
Activity: graphic design and visual identity
Average rate per project: 2,500 CHF excl. VAT
Variable costs per project: 300 CHF (temporary licences, photography subcontracting)
Annual fixed costs:
Coworking rent: 6,000 CHF
Professional insurance: 2,400 CHF
Software subscriptions (Adobe, BePaid, etc.): 1,800 CHF
Desired minimum salary: 48,000 CHF
Accounting: 1,200 CHF
Total fixed costs: 59,400 CHF
Contribution margin calculation:
Unit margin = 2,500 – 300 = 2,200 CHF
Margin rate = 2,200 / 2,500 = 88% (0.88)
Break-even point in CHF:
59,400 / 0.88 = 67,500 CHF
Break-even point in number of projects:
59,400 / 2,200 = 27 projects
Break-even point in days:
If Sophie aims for 80,000 CHF in annual turnover:
(67,500 / 80,000) × 365 = 309 days
Sophie needs to complete 27 projects (approximately 2-3 per month) to cover her costs. She reaches her break-even point in early November.
To set rates consistent with her objectives, Sophie can consult our guide Freelancers: how to calculate and set your rates.
Interpreting and using your break-even point
Knowing your break-even point is not enough: you need to use it as a day-to-day management tool.
This figure allows you to set realistic sales targets, assess the impact of your strategic decisions and anticipate the financial consequences of each change in your cost structure or offering.
Let's see how to use this information in practice.
Setting sales targets
Your break-even point defines your minimum target: the turnover to achieve to avoid losing money.
Use it as a basis for building your targets:
Minimum target = break-even point
Comfortable target = break-even point + 20-30%
Ambitious target = break-even point + 50% or more
This helps you size your sales efforts: number of prospects to contact, required conversion rate, number of services to deliver per month.
Assessing the impact of your decisions
Before each important decision, simulate its impact on your break-even point.
Example scenarios:
Hiring an employee: your fixed costs increase → your threshold rises
Increasing your prices by 10%: your contribution margin improves → your threshold falls
Moving to premises with lower rent: reduced fixed costs → more accessible threshold
Outsourcing a variable task: variable costs increase, reduced margin → threshold rises
Recalculate your threshold regularly (quarterly or after each significant change) to maintain a realistic view of your targets.
Limitations of the break-even point
The break-even point is a valuable indicator, but it has its limitations. It doesn't take seasonality into account: if your business varies significantly by month, the annual calculation can mask periods of tension.
It also ignores cash flow issues: reaching your threshold doesn't mean all your customers have paid. Payment delays can create significant timing differences.
The calculation also assumes linear growth, which is rarely the case in reality. Exceptional investments, price variations or changes in product mix complicate the analysis.
The break-even point is one management tool among others. Complement it with cash flow monitoring, updated forecasts and other financial indicators for a comprehensive view of your financial health.
Tools to facilitate monitoring
To monitor your break-even point effectively, start with an Excel or Google Sheets spreadsheet. Create a simple template with your fixed costs, variable costs and turnover forecasts. You'll be able to simulate different scenarios with just a few clicks.
Regular monitoring of your actual income and expenses is essential. This is where an invoicing tool like BePaid becomes valuable: you track in real time your issued invoices, received payments and realised turnover. Exports and bank reconciliation directly feed your calculations.
Create a monthly dashboard that compares your actual turnover to your break-even point. Add alerts if you're behind on your targets.
To refine your project-by-project management, consult our guide on project-based invoicing to track your margins project by project.
The break-even point remains an essential indicator for any entrepreneur who wants to manage their business with clarity. By precisely identifying the amount of turnover needed to cover your costs, you have a concrete benchmark for setting your sales targets, assessing the impact of your decisions and anticipating your cash flow needs.
The formula is simple: divide your fixed costs by your contribution margin rate. But beyond the calculation, it's the interpretation that matters. Compare your threshold to your current turnover, calculate your break-even point in days, and use this data to adjust your pricing strategy or control your costs.
To effectively monitor your profitability, you need a clear view of your invoices and receipts. Create your free BePaid account and manage your invoices, payments and cash flow in just a few clicks. You'll maintain control over the figures that truly determine your profitability.
