If I asked you right now how much you have to sell this month just to cover your costs, could you give me the exact figure, down to the dollar? Most owners I sit down with can’t. They know what they’d like to sell, and they know what they sold last month, but the amount that separates a losing month from a winning one has never been written down. That number is your break-even point, and it’s one of the tools I put in Chapter 4 of the Business Owner’s Playbook, the chapter on keeping score, because you can’t run a business you aren’t measuring.
The timing makes this urgent. In its August 2026 Small Business Economic Trends report, NFIB found that a net 31% of owners raised their average selling prices (opens in new tab), more than double the historical average of 14%. Among owners whose profits were down, 16% pointed to rising material costs. When your costs and your prices are both moving, a break-even figure you worked out two years ago is out of date, and every decision you make against it is a decision made blind.
We teach the upper management, the leadership, not to work in the business, to work on the business, and to measure differently than what they’ve been measuring in the past.
— Gary B. Henson, Consultant
The Playbook walks through it in four steps, and none of them requires an accounting degree. Step one is sorting your costs into two piles. Fixed costs stay the same no matter how much you sell: rent, insurance, management salaries, equipment payments, loan payments. Variable costs rise and fall with sales: commissions, direct labor, materials, freight. The Playbook gives owners one rule for the gray areas: “If you are in doubt about whether a cost is fixed or variable, then classify it as fixed. This will give you a more conservative break-even point.” I like that rule because it errs toward the number that keeps you safe.
Step two is turning your variable costs into a percentage of sales. Divide total variable costs by total sales. Step three is contribution margin, which is what’s left of every sales dollar after the variable costs come out. If variable costs run 25% of sales, your contribution margin is 75%. Step four gives you the answer: divide your total fixed costs by that contribution margin. The Playbook’s own example has $1,000,000 in fixed costs and a 75% contribution margin, so $1,000,000 divided by 75% puts break-even at $1,333,333 in sales. Below that line you lose money. Above it, every additional dollar of sales contributes 75 cents toward profit.
The Break-Even Analysis Form in the Playbook gives you the lines to fill in. It groups expenses into fixed, variable, annual or periodic costs such as insurance, taxes, and dues, and reserves for capital expenses and operating reserves. It also includes a line for profit at 10% to 15%, so that profit gets planned for instead of hoped for. The annual costs are the ones owners forget, and they’re the reason a business that looked fine in March feels squeezed in November.
of new private-sector establishments are still operating five years after opening, according to U.S. Bureau of Labor Statistics survival data. U.S. Bureau of Labor Statistics, Business Employment Dynamics →
Once you have the number, use it before you spend. The Playbook’s list of keys to financial success says to produce a break-even analysis prior to making major business decisions, and three decisions come up for almost every owner. The first is pricing. Say your variable costs creep from 25% to 30% of sales because materials went up. Your contribution margin drops to 70%, and on that same $1,000,000 in fixed costs, break-even climbs to about $1,428,571. That’s roughly $95,000 more in sales just to stand still. The second is hiring. A new salaried position is a new fixed cost, and the form tells you how many extra sales it takes to carry it. The third is equipment. A payment that feels manageable looks different once you see the sales it requires every month.
You can also point the same math at profit. If you want to keep 10% of sales, subtract that 10% from the 75% contribution margin and divide again: $1,000,000 divided by 65% is about $1,538,462 in sales. That figure is the target worth putting in front of your team. This is also why the exercise belongs in your regular meetings and not in a drawer. Pair it with the weekly numbers in The Weekly Scorecard Template Behind Better Decisions, and your people can see whether the week moved you toward the line or away from it. When expectations are clear and everyone can see the score, accountability stops being a conversation about blame. The overall structure behind this is what we build in Culture Overhaul™.
One caution. The Playbook’s example is a teaching illustration, and your numbers will have wrinkles. Sit down with your accountant and walk through the form together. Then block an hour this week, fill in every line, and write your break-even figure on the first page of your next management meeting agenda. If you can’t say it from memory by the end of the month, you haven’t finished the job.
