Break-even analysis is the calculation of the exact revenue level at which a business covers all its costs without making a profit or loss.
It answers: how much do I need to sell just to keep the lights on?
The formula
Break-Even Revenue = Fixed Costs ÷ Contribution Margin %
Contribution margin is the percentage of each revenue dollar remaining after variable costs. For SaaS with 80% gross margin, contribution margin = 80%.
At $30,000/month in fixed costs and 80% contribution margin: - Break-even = $30,000 ÷ 0.80 = $37,500/month
Why founders use break-even analysis
Before raising prices: Understand whether a price increase moves break-even significantly. A 10% price increase at 70% margin reduces break-even by 12.5%.
Before hiring: Every new full-time hire adds $8,000–$15,000/month in fixed costs. Break-even analysis shows the revenue growth needed to justify the hire without increasing loss.
Before fundraising: Investors want to see your break-even timeline. A clear break-even analysis builds credibility and shows financial literacy.
During downturns: If revenue drops, break-even analysis shows exactly how many customers you can lose before hitting zero operating margin.
Contribution margin vs gross margin
For software businesses, contribution margin ≈ gross margin. The distinction matters for businesses with meaningful per-unit variable costs (physical goods, per-transaction fees, manual service delivery).
Use the Break-Even Revenue Calculator to calculate yours in under 60 seconds.