Quick answer
Your break-even point is the level of sales at which gross profit exactly covers fixed costs, so the business makes neither profit nor loss. Calculate it by dividing fixed costs by your gross margin percentage. If fixed costs are $40,000 a month and gross margin is 40%, break-even sales are $100,000 a month excluding GST. Every dollar of sales above that line contributes to profit.
Key points
- Break-even sales = fixed costs ÷ gross margin %.
- Use figures excluding GST, and include the owner's market wage in fixed costs.
- Higher margins lower the break-even point; higher fixed costs raise it.
- Recalculate whenever wages, rent or prices change, and before any big commitment.
Ask an owner how much they need to sell each month to cover their costs and you’ll often get a pause, then a guess. Break-even is one of the most useful numbers in a business because it turns a vague worry (“are we doing enough?”) into a line you can check every week. It also tells you, before you commit, what a new hire, a bigger lease or a price change will do.
How do you calculate the break-even point?
You need two figures, both excluding GST:
- Fixed costs for the period: the costs you pay regardless of how much you sell.
- Gross margin %: the share of each sale left after variable costs (stock, materials, direct labour that varies with volume, merchant fees, freight).
Break-even sales = fixed costs ÷ gross margin %
Illustrative example. A Hamilton physiotherapy clinic has monthly fixed costs of $62,000: rent, reception and clinician salaries, software, insurance and the owner’s own market wage. Its variable costs (consumables, card fees, some contractor time) are about 12% of revenue, so gross margin is 88%.
$62,000 ÷ 0.88 = $70,455 a month of revenue excluding GST to break even.
What does break-even look like for different businesses?
| Business (illustrative) | Fixed costs a month | Gross margin | Break-even sales a month |
|---|---|---|---|
| Café | $38,000 | 65% | $58,462 |
| Building subcontractor | $55,000 | 35% | $157,143 |
| Online retailer | $22,000 | 42% | $52,381 |
| Accounting practice | $70,000 | 90% | $77,778 |
Notice how the subcontractor, with a thin margin, needs sales nearly three times its fixed costs. Thin-margin businesses are very sensitive to small changes in price or cost, which is why margin vs markup errors hurt them most.
Why include the owner’s wage in fixed costs?
Because otherwise “break-even” means the business covers everything except the person running it. If you take drawings rather than a salary, add a realistic market wage for the work you do as a fixed cost. A business that only breaks even before paying its owner is really making a loss.
How do changes move the break-even line?
Break-even is useful precisely because it moves:
- A wage increase raises fixed costs. From 1 April 2026 the adult minimum wage rose to $23.95 an hour, and the default KiwiSaver employer contribution moved to 3.5%. Both lift fixed costs for most employers. See pricing after the minimum wage rise.
- A price rise lifts gross margin, which lowers break-even.
- A new hire adds fixed cost; the question is whether the extra sales they enable clear the higher line.
- A bigger lease or a loan adds fixed cost too, which is why break-even belongs in any funding decision.
Illustrative example. The clinic above is considering a second treatment room and an extra clinician, adding $14,000 a month of fixed costs. New break-even: $76,000 ÷ 0.88 = $86,364 a month. If the extra clinician can bill about $20,000 a month, the clinic clears the new line with room to spare. If they’d only bill $12,000, the expansion lowers profit.
How do you use break-even day to day?
Turn the monthly figure into a weekly or daily target. The clinic needs about $16,250 a week. A café can divide its break-even by trading days to get a daily sales target for the till. Then compare actual sales with the target each week: you’ll know by Wednesday whether it’s been a good week, not at month end.
Our monthly numbers check includes break-even as one of the five figures worth reviewing every month.
Should you calculate break-even by month or by season?
Both, if your business is seasonal. An annual break-even figure divided by twelve hides the months that run below it. A Central Otago vineyard tour operator, a Taupō ski hire shop or a Bay of Plenty kiwifruit contractor might clear their annual break-even comfortably while losing money for five months of the year. For these businesses, work out monthly fixed costs (which barely change through the year) and compare them with each month’s expected gross profit. The months that fall short show you how much cash the good months must carry forward, which is exactly the figure your cash reserve or a seasonal facility needs to cover.
It’s also worth separating fixed costs you could pause in a quiet season (casual hours, some subscriptions, marketing) from those you can’t (rent, permanent salaries, loan repayments). The second group sets your true minimum.
What’s the margin of safety?
The margin of safety is how far sales can fall before you hit break-even. If the clinic turns over $90,000 a month against a break-even of $70,455, its margin of safety is about 22%. A business with a thin margin of safety should build a larger cash reserve, because a quiet month can tip it into loss.
When break-even supports a growth plan
Break-even analysis is how you test whether a growth step pays for itself. When the numbers show it does, the remaining question is funding the upfront cost. You can check your options here in about a minute.
Clear numbers, confident borrowing
Lenders like owners who know their break-even, because it shows the business understands what it needs to sell. If your analysis supports a hire, an expansion or a new line, we look at unsecured options for trading businesses and lending secured on residential or commercial property. There’s no credit check to enquire, your enquiry stays with one team and isn’t passed to other lenders, and a real person on our New Zealand team reads it. Accurate answers make the first call much more useful. Start your enquiry.
Frequently asked questions
What counts as a fixed cost?
Costs that don't change much with sales volume: rent, salaries of permanent staff, insurance, software, vehicle leases, loan repayments and accounting fees. Costs that rise with each sale, such as stock and materials, are variable.
Should wages be fixed or variable?
Permanent staff wages are usually treated as fixed, because you pay them regardless of sales in a given month. Casual hours or piece rates that rise and fall with volume can be treated as variable.
How do I calculate break-even in units?
Divide fixed costs by the gross profit per unit. If fixed costs are $12,000 a month and each unit earns $30 of gross profit, you need to sell 400 units a month to break even.
Why does my accountant's break-even differ from mine?
Usually because of what's counted as fixed versus variable, whether the owner's pay is included, and whether figures exclude GST. Agree the definitions and the numbers will line up.