Break-Even Analysis: How to Know When Your Business Starts Making Money (Free Calculator)

One of the most common questions Filipino entrepreneurs ask is: 'Am I actually making money?' Many small businesses run for months — even years — without truly knowing whether they're profitable or just staying afloat on revenue that doesn't cover all their costs. Break-even analysis is the simplest, most powerful financial tool for answering this question definitively. It tells you exactly how many units you need to sell (or how much revenue you need to generate) to cover all your costs and start making profit.

The Three Numbers You Need

1. Fixed Costs (Monthly)

Fixed costs are expenses that stay constant regardless of how much you sell. For a typical Philippine SME: rent (₱5,000–₱50,000), salaries (₱20,000–₱200,000), utilities (₱3,000–₱20,000), loan payments, software subscriptions, insurance. These costs exist whether you sell 1 unit or 10,000 units.

2. Variable Cost Per Unit

Variable costs change directly with production volume. For a food business: ingredients per serving. For a retailer: product purchase price + packaging. For a service business: freelancer cost per project + tools used. If you sell 0 units, you pay ₱0 in variable costs. If you sell 100 units, you pay 100 × your variable cost per unit.

3. Selling Price Per Unit

Your selling price must always be higher than your variable cost per unit — otherwise, every sale increases your losses. The difference between your selling price and variable cost is called the Contribution Margin: every peso of contribution margin goes toward covering fixed costs first, then profit.

The Break-Even Formula

Break-Even Units = Fixed Costs ÷ Contribution Margin per Unit. Where Contribution Margin = Selling Price − Variable Cost. Example: Fixed costs = ₱50,000/month. Variable cost = ₱120/unit. Selling price = ₱250/unit. Contribution margin = ₱250 − ₱120 = ₱130. Break-even units = ₱50,000 ÷ ₱130 = 385 units per month. Break-even revenue = 385 × ₱250 = ₱96,250.

Real Filipino Business Examples

• Sari-sari store: Fixed ₱5,000/mo, variable ₱35/item, price ₱50 → break-even = 333 items/month
• Online reseller: Fixed ₱8,000/mo, variable ₱280/product, price ₱450 → break-even = 47 products/month
• Catering: Fixed ₱30,000/mo, variable ₱180/plate, price ₱350 → break-even = 177 plates/month
• Freelance designer: Fixed ₱15,000/mo, variable ₱500/project (software), price ₱5,000 → break-even = 3.3 projects/month