Break-even point for a small business: a naira example
Calculate a simple monthly break-even point from fixed costs and contribution per sale, with examples for a Nigerian shop or service business.
The break-even point is the level of sales at which contribution covers the fixed costs included in a simple calculation. At that point, the example has no surplus left after those costs; it is not yet a target profit.
The basic calculation
- Contribution per unit = selling price per unit − variable cost per unit.
- Break-even units = monthly fixed costs ÷ contribution per unit.
Fixed costs in the example are costs that do not change directly with each unit sold during the period, such as an agreed monthly rent. Variable costs move with the sale, such as the product's purchase cost or materials used for one job. Real expenses can be more complicated; classify them consistently and ask an accountant when needed.
Example for a small shop
A shop uses ₦450,000 as its selected monthly fixed-cost total. It sells an item for ₦6,000 and pays ₦3,500 in variable cost for each unit. Contribution per unit is ₦2,500. The arithmetic is ₦450,000 ÷ ₦2,500 = 180 units.
In this simplified example, selling 180 units creates ₦450,000 contribution to cover the included fixed costs. At that point, the calculation leaves no profit after those costs. It also does not include costs the owner forgot to list, financing costs or taxes. If the selling price, purchase cost or sales mix changes, recalculate it.
For a service business
For a cleaning service, for example, the unit might be one completed job. Estimate the money left from one job after materials, direct labour, travel and any other costs that change with that job. Divide the monthly fixed costs you included by that contribution. Check whether the resulting number of jobs can realistically be completed with available staff and time.
Use the result as a planning question
Compare the break-even estimate with actual recorded sales, not only with enquiries or invoices sent. If sales are below the estimate, review price, cost, volume and capacity one at a time. Avoid assuming that a higher turnover always means more profit.
ReceiptPro can help organise invoices, receipts and sales records used in that review. The cash-flow vs profit guide explains why a break-even estimate is not the same as money available in the bank. Keep your assumptions written down and revisit them when rent, supplier or labour costs change.