Your break-even point is the amount you need to sell in a month to cover every cost you have. Below it you lose money. Above it you make money. It is one number, and it decides whether a slow month is a real problem or just a normal month.
Most owners can say what their rent is and what a product costs them. Far fewer can say how many sales they need before the month pays for itself. This guide shows how to work that number out, in units and in dirhams, with UAE examples, and how to keep it accurate once you have it.
The two formulas
There are two versions of the same calculation. Use the one that matches how you sell.
Break-even in units, for a business that sells things:
Break-even units = Fixed costs ÷ (Selling price per unit − Variable cost per unit)
The bottom half, selling price minus variable cost, is the contribution margin. It is what one sale contributes towards your fixed costs.
Break-even in revenue, for a business that sells time or projects:
Break-even revenue = Fixed costs ÷ Contribution margin percentage
Contribution margin percentage = (Selling price − Variable cost) ÷ Selling price
| Version | Best for | Answer you get |
|---|---|---|
| Units | Shops, e-commerce, manufacturing, food | How many items to sell |
| Revenue | Consulting, agencies, clinics, trades | What to bill this month |
Fixed costs and variable costs
Fixed costs stay the same whether you sell nothing or sell out: rent, salaries, trade licence, insurance, loan payments, software, DEWA standing charges.
Variable costs move with each sale: wholesale cost of goods, packaging, delivery, card processing fees, sales commission.
Only fixed costs go on top of the formula. Variable costs belong at the bottom, inside the contribution margin. Putting all your costs on top is the single most common error, and it overstates the number you need to hit.
Three worked examples
A Dubai restaurant. Fixed costs AED 45,000 a month, covering rent, staff, and utilities. The average meal sells for AED 75 and the food costs AED 30. Contribution per meal is AED 45.
AED 45,000 ÷ AED 45 = 1,000 meals a month, about 33 meals a day. Meal 1,001 is the first one that makes money.
An Abu Dhabi trading company. Fixed costs AED 25,000. Average sale AED 500, product cost AED 350, so contribution is AED 150.
AED 25,000 ÷ AED 150 = 167 sales a month.
A Sharjah interior design studio. Fixed costs AED 55,000: office AED 15,000, three designers AED 30,000, software and everything else AED 10,000. The average project bills AED 25,000 and costs AED 10,000 in subcontractors, materials, and travel. Contribution margin is AED 15,000, which is 60 percent.
AED 55,000 ÷ 0.60 = AED 91,667 a month, which is about four projects.
You can run your own numbers in the break-even calculator instead of doing this by hand.
Break-even and profit are not the same thing
Break-even is where profit is zero. It is a floor, not a target. If you want to make AED 20,000 a month, add it to your fixed costs before you divide:
(AED 45,000 + AED 20,000) ÷ AED 45 = 1,445 meals a month.
That is the version of the calculation worth putting on the wall. Break-even tells you when you stop losing. Adding your target profit tells you when the business is actually paying you. Profit itself is a separate measure, and gross profit margin is where to start on that.
Six things that make the number wrong
Using VAT-inclusive prices. UAE VAT is 5 percent, and it is not your money. A product sold at AED 105 including VAT earns you AED 100. With AED 45 of variable cost and AED 30,000 of fixed costs, the VAT-inclusive price gives 500 units and the correct VAT-exclusive price gives 545. Nine percent of your break-even can disappear on this alone. Always divide the customer price by 1.05 first. Keeping VAT-ready records makes that split automatic.
Counting only base salary. An employee on AED 5,000 does not cost AED 5,000. Add visa costs spread over the two-year cycle, health insurance, the end-of-service gratuity you are accruing at 21 days of basic pay per year for the first five years, and an annual flight ticket if the contract includes one. The real figure is closer to AED 6,300. Across three staff that is nearly AED 4,000 a month of fixed cost missing from your formula.
Leaving semi-variable costs on one side. A driver on AED 4,000 base plus AED 15 per delivery is both kinds of cost at once. Put the AED 4,000 in fixed and the AED 15 in variable. Forcing it entirely into one column can move the answer by thousands of orders.
Averaging the year. Summer DEWA bills are higher than winter ones, marketing spend rises in the last quarter, insurance and licence renewals land in one month. A business that averages its fixed costs across twelve months will quietly lose money in its expensive months. Calculate break-even month by month with that month's real costs.
Forgetting spoilage and markdowns. If one item in twenty is thrown away or discounted, your true variable cost per sold unit is higher than the invoice price. Use what you actually paid divided by what you actually sold.
Treating it as a one-time exercise. Rent renews, suppliers raise prices, you hire. Every one of those moves the number. Recalculate whenever a fixed cost changes, and at least once a quarter otherwise.
Margin of safety: how much room you have
Once you know break-even, the useful follow-up is how far above it you are.
Margin of safety = (Current sales − Break-even sales) ÷ Current sales
The restaurant selling 1,300 meals against a break-even of 1,000 has a margin of safety of 23 percent. Sales can drop by nearly a quarter before the month turns into a loss. Under about 10 percent, one bad week is enough to put you under, and that is the point to look at pricing or fixed costs rather than at more marketing.
Using break-even to decide
Break-even is most useful before a decision, not after one.
Hiring. A new AED 12,000 salary with contribution of AED 45 per meal means 267 extra meals a month just to stand still. If you cannot see where those meals come from, the hire is early.
A new location. Work out the new branch's own fixed costs and its own break-even, and hold it separately from the branch that is already working. A profitable business can hide a loss-making second site for a long time.
Pricing. Raising the meal price from AED 75 to AED 82 lifts contribution from AED 45 to AED 52 and drops break-even from 1,000 meals to 866. A small price move usually beats a large volume push, because it needs no extra cost at all.
Discounting. A 20 percent discount on a AED 75 meal takes contribution from AED 45 to AED 30, and break-even from 1,000 meals to 1,500. Any discount campaign should come with the volume it needs to be worth running.
Where the numbers come from
The formula is easy. Keeping the inputs current is the work. Fixed costs change when you renew a lease or add staff, and variable costs change every time a supplier updates a price list.
SmallERP holds your costs and sales in one place, so your fixed costs, your cost of goods, and what you actually sold come from your own records rather than from an estimate typed into a spreadsheet once a year. When a supplier price changes, the contribution margin that depends on it changes with it.
Corporate tax sits above all of this, at 9 percent on taxable profit over AED 375,000 a year. It does not change your break-even point, because break-even is where profit is zero and there is nothing to tax. It changes what you keep above it. For anything specific to your own tax position, speak to a registered tax agent or accountant.