Beyond Survival: How I Use the Break-Even Point to Build a Profitable Business
As someone who has spent years in corporate governance, policy implementation, and operations management, I can tell you this with absolute certainty: every business owner in Kenya — whether running a vibrant café in Nairobi or a small agro-vet shop in Kisii — needs to know their break-even point. This is that critical figure where your total sales exactly cover your total costs. You’re not making a profit yet, but you’re also not losing money. It’s your line of survival.
When I first understood this concept deeply, it changed how I viewed business. Suddenly, running a business wasn’t about gut feeling or hope; it became a strategic exercise. Knowing your break-even point tells you the minimum you must sell each month to keep your doors open. Even better, it shows you precisely when each extra sale becomes pure profit. I encourage entrepreneurs I work with to calculate this number, and then use it to make smarter decisions about pricing, controlling costs, and charting a path to real profitability.
The Building Blocks: Fixed Costs vs. Variable Costs
Before you can determine your break-even point, you need to understand your costs and split them into two categories. In my experience, getting this step right is half the battle won.
Table 1: Key Break-Even Terminology
| Term | What It Means (with Kenyan Examples) | Why It Matters |
|---|---|---|
| Fixed Costs | Expenses that stay the same every month, no matter how much you sell. Think of your shop rent, salaries for permanent employees, security services, and business permits. | These are the unavoidable costs you must pay to keep the business running. They’re the base of your break-even formula. |
| Variable Costs | Costs tied directly to what you sell. If you sell nothing, you spend nothing here. For example, the flour for making chapati, the fabric for a dress, or the wholesale price of a product you’re reselling. | Knowing this cost per item helps you calculate how much you actually earn on each sale. |
| Contribution Margin | The profit from each unit sold before fixed costs. Simply put: `Selling Price per Unit – Variable Cost per Unit`. | This shows how much each sale helps pay off your fixed costs. |
| Break-Even Point | The number of units you need to sell to cover both fixed and variable costs. Calculated as `Total Fixed Costs / Contribution Margin`. | This becomes your monthly survival target. Any sale beyond this is your profit. |
Calculating the ‘Magic Number’: A Real Example
Let me share a simple example from a small t-shirt printing business I once advised in Nairobi. Once you’ve listed your costs clearly, the math is straightforward.
Table 2: Sample Break-Even Calculation (T-Shirt Printing Business)
| Step-by-Step Calculation | |
|---|---|
| 1. Fixed Monthly Costs | Workshop rent: KES 15,000 Salary for one assistant: KES 20,000 Total Fixed Costs = KES 35,000 |
| 2. Per-Unit Costs & Price | Selling price per t-shirt: KES 1,000 Variable cost per t-shirt (blank + ink): KES 600 |
| 3. Contribution Margin | `KES 1,000 – KES 600 = KES 400` Contribution Margin = KES 400 per t-shirt |
| 4. Break-Even Units | `KES 35,000 / KES 400 = 87.5` So, you need to sell 88 t-shirts to break even. |
| Conclusion | From the 89th t-shirt onward, you’re making a real profit. |
So You Have Your Number — Now What?
Your break-even point isn’t just a one-time calculation. It’s a dynamic tool that helps you make decisions every single month. The goal is to push this number down so you can reach profitability faster. Over the years, I’ve found there are three main ways to do that.
Table 3: 3 Ways to Lower Your Break-Even Point
| Strategy | Practical Ideas | Why It Works |
|---|---|---|
| 1. Cut Fixed Costs | Renegotiate your rent. Cancel unnecessary subscriptions. Share premises with another business to split expenses. | Every shilling you save here reduces the amount you must earn to survive. |
| 2. Lower Variable Costs | Source cheaper raw materials. Buy in bulk for discounts. Improve production to cut waste. | This increases how much each sale contributes to covering your fixed costs. |
| 3. Raise Your Selling Price | Offer higher quality, unique branding, or exceptional service so customers are willing to pay more. | This also boosts your contribution margin. Just ensure the value justifies the price so customers stay loyal. |
By truly understanding how your costs, pricing, and sales volumes work together, you stop merely running a business and start growing a strategic, profitable enterprise. That’s exactly what I strive to help business owners achieve — and it all begins with knowing your break-even point. Find your number, then use these strategies to not just survive, but to thrive.