Your break-even point is the level of sales where the business covers every cost and makes exactly nothing. Below it, you’re losing money; above it, every extra sale earns profit. The formula is simple:
Break-even sales = fixed costs ÷ contribution margin %
Most owners know roughly what they turn over. Far fewer know the number they need to turn over — per month, per week, or per day the doors are open. This guide shows how to work it out on New Zealand numbers, how GST, wages and KiwiSaver fit in, and exactly how much a new loan repayment moves the target.
What counts as a fixed cost and what counts as variable?
Everything hinges on sorting your costs into two buckets.
- Fixed costs stay about the same whether you have a quiet month or a busy one.
- Variable costs rise and fall with every sale.
| Usually fixed | Usually variable |
|---|---|
| Rent and outgoings | Stock, ingredients, materials |
| Permanent staff wages and employer KiwiSaver | Packaging and freight out |
| Insurance, power base charges, software | Card and EFTPOS merchant fees |
| Accountant, phone, internet | Sales commission |
| Vehicle and equipment lease payments | Casual hours that only exist when it’s busy |
| Owner’s pay | Platform fees (delivery apps, marketplaces) |
| Loan repayments | Subcontractors paid per job |
The two in bold are the ones most owners leave out. We’ll come back to why they matter.
Grey areas are normal. Power is part fixed, part variable; casual staff might be rostered regardless of trade. Don’t overthink it — put a cost where it mostly behaves, and be consistent.
How do you work out the contribution margin?
Contribution margin is the share of each sales dollar left over, after variable costs, to pay the fixed costs.
Contribution margin % = (sales − variable costs) ÷ sales
If you sell $50,000 in a month and your variable costs are $18,000, your contribution is $32,000 and your contribution margin is 64%. Every $1 of sales leaves 64c to cover rent, wages and everything else.
It’s close to gross margin, but not quite the same. Gross margin usually only takes out the cost of goods sold. Contribution margin also takes out other costs that move with sales, such as card fees and packaging. If you’ve already worked out your gross margin with our markup vs margin guide, start there and subtract those extra variable costs.
Where does GST fit in?
If you’re GST-registered, do all of this ex GST. The 15% you add to sales goes to Inland Revenue, and you claim back the GST on what you buy. Neither is yours. Inland Revenue’s charging GST page explains how to take GST out of an inclusive price: multiply by 3/23.
The one time GST-inclusive numbers help is at the till. Once you have your ex-GST break-even, multiply by 1.15 to see what your POS should show on a break-even day.
A worked example: a Hawke’s Bay café
This is an illustrative example, not a real business.
A café open 26 days a month has these monthly fixed costs, all ex GST:
| Fixed cost | Per month |
|---|---|
| Rent and outgoings | $6,500 |
| Permanent staff wages | $14,000 |
| Employer KiwiSaver (3.5%) | $490 |
| Insurance, power, software, accountant | $2,800 |
| Owner’s pay | $6,000 |
| Equipment loan repayment | $1,200 |
| Total | $30,990 |
Variable costs: food and drink at 32% of sales, packaging at 2.5% and card fees at 1.5% — 36% in total. So the contribution margin is 64%.
Break-even sales = $30,990 ÷ 0.64 = $48,422 a month ex GST
Now make it useful:
- Including GST, that’s about $55,685 through the till.
- Per trading day: $48,422 ÷ 26 = $1,862 ex GST.
- With an average spend of $18 ex GST, that’s 104 customers a day just to stand still.
“104 customers” is a number the whole team can watch. “We need about $48k a month” isn’t.
How much profit is above break-even?
Say a normal month brings in $56,000 ex GST:
- Contribution: $56,000 × 0.64 = $35,840
- Less fixed costs of $30,990 = $4,850 profit before tax
The margin of safety — how far sales can fall before you hit break-even — is ($56,000 − $48,422) ÷ $56,000 = 13.5%. Put another way, a drop of roughly one customer in seven wipes out the month’s profit.
Cash break-even or profit break-even?
Your accountant may work out a different break-even figure from yours, and both can be right. They answer different questions.
| Profit break-even | Cash break-even | |
|---|---|---|
| Loan repayments | Interest only | Full repayment (principal and interest) |
| Depreciation | Included | Left out — no cash leaves |
| Owner’s pay | Depends on structure | Included — what you actually draw |
| Answers… | “Are we profitable?” | “Will the bank balance hold up?” |
For running the business day to day, the cash break-even is the one that keeps you out of trouble. A business can show a small accounting profit and still run short of cash every month because principal repayments and drawings don’t appear in the profit figure. That’s the version used in the café example above.
Want profit on top, enough to cover income tax and provisional tax? Add a target to the top line:
Sales for a target profit = (fixed costs + target profit) ÷ contribution margin %
For the café to clear $5,000 a month before tax: ($30,990 + $5,000) ÷ 0.64 = $56,234 a month ex GST.
What moves your break-even point?
This is where the formula earns its keep. Because you’re dividing by the contribution margin, every change in fixed costs is magnified.
Extra sales needed = extra fixed cost ÷ contribution margin %
At a 64% contribution margin, each extra $1 of monthly fixed cost needs about $1.56 more in sales.
The 1 April cost reset. From 1 April 2026, the default KiwiSaver rate rose from 3% to 3.5% for employers, according to Inland Revenue, and it is set to rise to 4% from 1 April 2028. On the café’s $14,000 wage bill, the 0.5-point rise costs $70 a month, which needs about $109 more sales a month. MBIE confirmed the adult minimum wage rose to $23.95 an hour from 1 April 2026, up 45c. For one full-time employee on the minimum doing 40 hours a week, that’s about $78 a month, or another $122 of sales. Neither number is big on its own. Stack them with a rent review and an insurance renewal and the target creeps up without anyone noticing.
Variable cost creep is worse. If the café’s food and drink cost drifts from 32% to 34%, the contribution margin falls to 62%. Break-even rises to $30,990 ÷ 0.62 = $49,984, which is $1,562 a month more, and fixed costs haven’t changed at all. Supplier price lists are worth checking every time they change.
A new loan repayment. Suppose the café borrows for a second espresso machine and a counter refit, adding $2,000 a month in repayments:
- Extra sales needed: $2,000 ÷ 0.64 = $3,125 a month
- New break-even: about $51,547 ex GST
- Per trading day: about $120 more, or 7 more customers at an $18 average
So the question isn’t really “can we afford $2,000 a month?” It’s “will the new machine and counter bring in at least seven extra customers a day, or lift the average spend?” If a second group head cuts the queue at morning peak, that’s very achievable. If the refit is cosmetic, it may not be. Either way, you’re making the decision with numbers instead of a gut feel.
If your numbers stack up and you’re weighing up equipment funding for an upgrade like this, see if you qualify. It takes about a minute.
What about seasonal months?
A single annual break-even figure hides the months that cause trouble. Run it monthly.
Back at the café, winter trade drops to $42,000 a month from June to August:
- Contribution: $42,000 × 0.64 = $26,880
- Less fixed costs: $30,990
- Shortfall: $4,110 a month, or $12,330 over the three months
That $12,330 is the cash buffer (or short-term facility) the business needs to have in place before winter. Summer surpluses usually more than cover it across the year, but the timing doesn’t line up on its own. Our seasonal cash-flow planning guide walks through building the month-by-month view, and the cash-flow gap calculator sizes the gap for you.
Remember that GST and provisional tax payments land on their own dates regardless of trade. Break-even tells you whether you’re making money. Your cash calendar tells you whether the money’s there on the day.
What if you sell by the unit?
If you sell one main product or service at a fairly steady price, the unit version is handy:
Break-even units = fixed costs ÷ (price per unit − variable cost per unit)
A maker selling a product at $40 ex GST, with $16 of materials and freight per unit and $12,000 of monthly fixed costs, contributes $24 a unit. Break-even is $12,000 ÷ $24 = 500 units a month. Trades businesses can do the same with billable hours: fixed costs ÷ (charge-out rate − variable cost per hour).
Five mistakes that make break-even look better than it is
- Leaving out owner’s pay. Breaking even while paying yourself nothing isn’t break-even.
- Mixing GST-inclusive sales with ex-GST costs. It flatters the margin by the whole 15%.
- Using an annual average for a seasonal business. The average month might be fine while three real months lose money.
- Forgetting principal repayments. They don’t show in the profit and loss, but they leave the bank all the same.
- Not updating it. A break-even figure from before the last rent review and wage rise is out of date.
Turning your break-even into a funding decision
Once you know your break-even, you know something most borrowers don’t: exactly how much room the business has to carry a new commitment, and what it needs to earn to pay for itself. That makes a funding decision clearer. A working capital loan to get through a known seasonal gap. A business line of credit to sit behind the winter months. Equipment that lifts capacity enough to clear its own repayment and then some.
If you’ve run the numbers and want to talk them through with someone who reads them every day, here’s how Loanster works:
- About 60 seconds to enquire, and no credit check when you first enquire.
- Your details aren’t sent to a pile of lenders. No spray-and-pray, and no phone lighting up with calls from people you’ve never heard of.
- A real person looks at your situation — your sales, your margins, what the money’s for — and calls you to talk it through.
- Please fill the form in accurately. Real turnover and a realistic amount let us match the right option first time, rather than the second or third.