The level of sales where the business makes neither a profit nor a loss: what is left from sales after direct costs exactly pays the overheads. Below it you lose money each month; above it, every extra sale adds profit.

How do I calculate break-even sales?

Divide your monthly overheads by your gross margin. With $20,000 of overheads a month and a 40% gross margin, break-even = 20,000 ÷ 0.40 = $50,000 of sales a month.

What is the difference between overheads and direct costs?

Direct costs (cost of sales) rise with each sale: materials, stock, subcontractors, card fees. Overheads stay roughly the same whatever you sell: rent, salaried wages, software, insurance, accounting. In Xero, direct costs sit above the Gross Profit line on the Profit and Loss and overheads below it.

Where do I find my gross margin in Xero?

Run the Profit and Loss for the last 12 months. Divide Gross Profit by Total Trading Income (sales) and multiply by 100. If your Profit and Loss has no Gross Profit line, your direct costs are probably coded as overheads; ask your bookkeeper, because the margin will read as 100%.

Should I include my own pay?

If you are paid a salary through the business, it is already in overheads. If you take drawings or dividends instead, enter what you want to take each month as "Profit you want left over": the calculator then shows the sales that cover the overheads and pay you.

Are my figures stored or sent anywhere?

No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.

How is this different from ReportPilot's weekly email?

This calculator works from figures you type in once. ReportPilot reads your Xero figures each week: set your break-even (or the figure that pays you) as your monthly sales goal and the Monday email says how far through it you are and whether you are on pace, and it points out when gross margin moves by 3 percentage points or more.

Break-even calculator: how much do I need to sell a month?

How the calculator works

Break-even sales = monthly overheads ÷ gross margin. It is the sales at which what is left after direct costs exactly pays the overheads.
Per week = the monthly figure × 12 ÷ 52.
Cushion = (your sales − break-even) ÷ your sales. It is how far sales can fall before you make a loss.
Sales that also pay you = (overheads + the profit you want) ÷ gross margin.

A worked example

A business has $20,000 of overheads a month and a 40% gross margin. It sells about $55,000 a month, and the owner wants $5,000 a month left over to take out. (Made-up figures to show the arithmetic.)

	Amount
Break-even: $20,000 ÷ 0.40	$50,000 a month
Per week: $50,000 × 12 ÷ 52	about $11,500
Profit today: $55,000 × 0.40 − $20,000	$2,000 a month
Cushion: ($55,000 − $50,000) ÷ $55,000	9%
To leave $5,000: ($20,000 + $5,000) ÷ 0.40	$62,500 a month

The business is profitable, but only just: one month 10% quieter than usual and it makes a loss. To pay the owner $5,000 it needs another $7,500 of sales a month, or a better margin: at 44% instead of 40%, $55,000 of sales leaves $4,200. Press "Load the worked example" above to see it in the calculator.

Getting the figures from Xero

Run Accounting › Reports › Profit and Loss for the last 12 months (or the last 3 if the business has changed a lot).
Gross margin: Gross Profit ÷ Total Trading Income × 100.
Overheads: Total Operating Expenses ÷ the number of months. Leave out depreciation if you want a cash view, and add loan repayments, which do not show on the Profit and Loss. If some expenses rise with sales (card fees, commission, packaging), count them in the margin rather than the overheads: fixed and variable costs shows how to split them.
Sales: Total Trading Income ÷ the number of months.

Why break-even can mislead

Break-even is about profit, not cash. You can be above it and still run short if customers pay slowly or you are building stock. The profit but no cash explainer shows where the difference goes, and the debtor days calculator shows how long customers take to pay.
Seasonal businesses sit below break-even in quiet months by design. Compare a full year of sales with twelve months of overheads, and make sure the cash from busy months lasts through the quiet ones: the cash runway calculator helps. To see which months will fall short before the year starts, a profit and loss forecast lays out sales and costs month by month.
Costs coded in the wrong place distort the margin. If subcontractors or materials sit under operating expenses, gross margin reads too high and break-even too low.

How to lower your break-even

Raise prices a little. On a 40% margin, a 5% price rise with the same costs takes the margin to about 43% and break-even down by about $3,300 a month in the example.
Cut direct costs: supplier prices, waste, rework, discounts given away by habit.
Trim overheads that do not bring in sales: unused software, subscriptions, space.
Sell more of what earns the most. If some products or services have a much better margin, steer customers towards them.

Questions

What is break-even?: The level of sales where the business makes neither a profit nor a loss: what is left from sales after direct costs exactly pays the overheads. Below it you lose money each month; above it, every extra sale adds profit.
How do I calculate break-even sales?: Divide your monthly overheads by your gross margin. With $20,000 of overheads a month and a 40% gross margin, break-even = 20,000 ÷ 0.40 = $50,000 of sales a month.
What is the difference between overheads and direct costs?: Direct costs (cost of sales) rise with each sale: materials, stock, subcontractors, card fees. Overheads stay roughly the same whatever you sell: rent, salaried wages, software, insurance, accounting. In Xero, direct costs sit above the Gross Profit line on the Profit and Loss and overheads below it.
Where do I find my gross margin in Xero?: Run the Profit and Loss for the last 12 months. Divide Gross Profit by Total Trading Income (sales) and multiply by 100. If your Profit and Loss has no Gross Profit line, your direct costs are probably coded as overheads; ask your bookkeeper, because the margin will read as 100%.
Should I include my own pay?: If you are paid a salary through the business, it is already in overheads. If you take drawings or dividends instead, enter what you want to take each month as "Profit you want left over": the calculator then shows the sales that cover the overheads and pay you.
Are my figures stored or sent anywhere?: No. The calculation runs in your browser. Nothing you type is saved or sent to our server or anyone else. The only exception is if you ask us to email you the result: then your email address and a short summary of the result are stored, and nothing is sent until you confirm.
How is this different from ReportPilot's weekly email?: This calculator works from figures you type in once. ReportPilot reads your Xero figures each week: set your break-even (or the figure that pays you) as your monthly sales goal and the Monday email says how far through it you are and whether you are on pace, and it points out when gross margin moves by 3 percentage points or more.

This calculator gives an estimate from the figures you enter. It is not financial advice. Xero is a trademark of Xero Limited. This tool and ReportPilot are independent and are not made or endorsed by Xero.

Break-even calculator: how much do you need to sell each month?

Your break-even