# What is Break-Even Analysis?

What is Break-Even Analysis? Calculating how many sales/how much revenue is needed to cover fixed and variable costs.

## How it works in practice

Break-even is the business's 'survival line.' Before investing in advertising, staff, or inventory — calculate break-even. 'How many sales must we make each month just to avoid a loss?' That's the number to memorize.

## Related metrics

- Contribution Margin — Break-Even = Fixed Costs / Contribution Margin
- COGS — feeds into the calculation
- Fixed vs Variable Costs — a basic distinction for break-even
- Gross Margin — Break-Even ROAS = 1 / Gross Margin

## Common misconception

'Break-even is a one-time calculation.' Break-even shifts with every raise, new lease, added employee, or new discount. Recalculate break-even every time you add a fixed cost.

## How to fix it

Don't know your break-even? (1) List all monthly fixed costs (rent, salaries, subscriptions), (2) Calculate average Contribution Margin (AOV × Gross Margin - Variable Costs), (3) Divide: Fixed Costs / CM = number of orders needed to break even. Simple.

## Real-world example

Cosmetics store: fixed costs $7,800/month. AOV $44, Contribution Margin $13. Break-even: 7,800/13 = 600 orders/month. Currently: 420 orders = losing $2,340/month. Clear target: +180 orders.

## Where to start

Calculate break-even before any investment. Before hiring: does the new break-even fit current revenue? Before opening a warehouse: what's the new break-even? A simple spreadsheet — 30 minutes.

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Category: Finance · From the [Jimmy OS KPI Glossary](https://jimmy-os.com/glossary/kpi.md) · Source page: https://jimmy-os.com/glossary/kpi/break-even-analysis