Fixed vs. Variable Costs Made Simple
- Orlando Villa
- Oct 22
- 2 min read
Knowing your break-even point is one of the most important steps in ensuring your business is profitable. Without it, you’re essentially flying blind — not knowing how many units you need to sell to cover your fixed and variable costs. In this guide, we’ll walk through the calculation step by step, using a simple example.
What is Break-Even Point?
The break-even point is the moment when your total revenue equals your total costs — meaning you’re not losing money, but you’re not making profit yet either. Every sale beyond this point contributes to profit.
How to Calculate It (Example)
To calculate your break-even point, you need three key numbers:
Selling Price per Unit – How much you charge your customer.
Variable Cost per Unit – The cost directly tied to producing or selling each unit (e.g., materials, transaction costs).
Fixed Costs – Expenses that stay the same regardless of sales volume (e.g., rent, salaries, software licenses).
Example:
Selling price = $10
Variable cost = $7
Margin per unit = $3
Fixed costs = $1,000
Break-even calculation: $1,000 ÷ $3 = 333 unitsThis means you need to sell 333 units at $10 each just to cover your costs. Every unit sold after this becomes profit.
Why This Matters
Helps you set realistic sales targetsShows whether your pricing strategy is sustainableGuides decisions on whether to increase price, reduce costs, or scale sales volume
Final Thoughts
Understanding your break-even point isn’t just a financial exercise — it’s a strategic tool. By knowing the exact sales volume you need to survive and thrive, you can make smarter pricing, investment, and growth decisions.
Ready to apply these insights to your business?
Schedule a consultation with FinSight Latino today and let us help you align your financial strategy with the opportunities in the U.S. Latino market.
About the Author
Jorge García is the Founder of FinSight Latino and a finance executive with over 20 years of experience in banking, fintech, and consulting. He specializes in helping entrepreneurs and business owners strengthen their financial foundations, improve profitability, and expand into new markets — particularly within the Latino business community.