A café owner has AED 40,000 in monthly fixed costs (rent, salaries, utilities) and each cup of coffee sells for AED 15 with AED 5 in variable ingredient cost.
The Walkthrough
- Separate fixed costs from variable costs
Fixed costs (AED 40,000/month) don't change with sales volume; variable cost per cup (AED 5) scales directly with how many cups are sold — keeping these separate is essential to the calculation. - Calculate the contribution margin per cup
AED 15 selling price minus AED 5 variable cost leaves AED 10 contribution margin per cup — the amount each sale contributes toward covering fixed costs. - Divide fixed costs by the contribution margin
AED 40,000 fixed costs divided by AED 10 contribution margin per cup means 4,000 cups need to be sold per month just to break even. - Convert to a daily target
4,000 cups over roughly 30 days works out to about 133 cups per day needed just to cover costs, before any profit begins. - Test different price points
Re-run the calculation at a slightly higher price per cup to see how much the break-even volume drops — useful for evaluating a potential price increase.
The Takeaway
Knowing the exact break-even volume — 4,000 cups a month in this example — turns a vague goal like 'sell more coffee' into a concrete daily target, and shows precisely how sensitive that target is to even a small price change.
Try It With Your Own Numbers
This example used specific figures to make the process concrete, but the same steps apply whatever your actual numbers are. Run the Break-Even Calculator with your own details — free, in under a minute, no sign-up required.
Frequently Asked Questions
Does break-even include the owner's own salary?
It should, if the owner draws a salary from the business — leaving it out understates true fixed costs and produces an artificially low break-even point.
What if sales volume varies a lot by season?
Break-even is typically calculated as a monthly average; a seasonal business may want to calculate it separately for peak and off-peak periods to plan accordingly.
Does raising the price always lower the break-even volume?
Yes, assuming variable cost stays the same, since a higher contribution margin per unit means fewer units are needed to cover the same fixed costs.
How does this differ from calculating profit margin?
Break-even tells you the volume needed to reach zero profit; margin tells you the profitability at a given price — they're related but answer different questions.
Should delivery or packaging costs be included as variable cost?
Yes, any cost that scales directly with each unit sold — including packaging or delivery per order — should be included in the variable cost figure.