Break-Even Explained

Beginner: Fixed Costs, Variable Costs, and the Line

Two kinds of cost, and why it matters

Fixed costs stay the same no matter how much you sell: rent, a software subscription, insurance. Whether you sell zero or a thousand, the bill is the same.

Variable costs move with each sale: the wax in each candle, the card fee on each order. Sell more and they go up; sell nothing and they are zero. Break-even math only works once you can sort your costs into these two buckets.

What break-even actually is

Break-even is the point where your total revenue exactly equals your total cost. Not a dollar of profit, not a dollar of loss. You covered everything and kept nothing.

It sounds unglamorous, and it is the most useful number in your business. Everything sold after break-even carries much more profit, because your fixed costs are already paid.

Contribution: what each sale gives back

Every sale contributes something toward those fixed costs. That amount is your price minus the variable cost of that one unit, and it is called contribution margin.

Example: a candle sells for 20 dollars and costs 8 in wax, jar, and fees. Each candle contributes 12 dollars toward paying the rent. Stack up enough 12 dollar contributions to cover all your fixed costs, and you have hit break-even.