Most creative business owners can name their revenue offhand. Almost none of them can name the number their business actually needs to make every month to cover the bills, pay themselves a baseline, and stay solvent. Without that number, every pricing decision runs on hope, every hiring conversation runs on guessing, and every “should I take this project?” is a gut check.
So today we’re talking about break-even. What it actually is, why it’s the anchor every other decision references, and what changes the day you finally sit down and calculate it..
If you can name your revenue but not your break-even, that’s the number I want to help you calculate. Send me a message on Instagram @firestormfinance or email me at samantha@firestormfinance.com. We build break-even into every Wildfire engagement, alongside profitability, cash flow, and forecasting, so pricing, hiring, and spending decisions finally have something to anchor against.
Read the Transcript
Most creative business owners can tell you their revenue offhand. Very few of them can tell you their break-even. Which is the exact number their business needs to make every single month just to cover the bills, pay themselves a baseline, and stay solvent.
Welcome back to another episode of Creative Minds, Smart Money, where today we’re digging into break-even. Without that number, every pricing decision runs on hope. Every hiring conversation is running on guessing. It also affects the “should I take the project?” question, and leaves you with that gut feeling of “should I?”
Break-even is the anchor number in a business. It’s the number every other decision references. And it’s the number most creative business owners have never calculated for their own business, and never really thought about. Because who really cares about a break-even number? “I just want to make money, I want to be profitable.” But break-even is one of the most important numbers we can have in our business, and one of the most important numbers we can reflect on to see the success of our business.
What break-even actually is
If you’re new to finance and new to talking about numbers, you might be saying, “Samantha, what is break-even? I don’t understand what you’re even talking about.”
Break-even is more than just revenue equals expenses. That definition is your operating break-even, and it doesn’t leave you room to pay yourself. That’s a danger zone, because paying yourself is so important.
When you’re looking at your real break-even, you look at several things. Your fixed costs: subscriptions, rent, employees, utilities. Anything that’s generally a fixed cost. And a fixed cost doesn’t mean the cost can’t fluctuate. Utilities can be $120 one month and $112 the next. A fixed cost is something you have to pay every month that has to be accounted for.
So you have your fixed monthly costs plus your minimum owner’s pay, the amount you need to pay yourself, the bare minimum you need to feel like you’re being successful. And this isn’t saying that’s all we’re ever going to pay. This is your floor. “I need to make this much to live the life I want to live. This is my bare minimum.”
Then we include a tax reserve percentage. Looking at your local state, what kind of taxes do you need to set aside for? 25%? 35%? Whatever it is. And then a small buffer for savings.
The 3 commonly missed pieces
The 3 most commonly missed pieces are:
1. Subscriptions. Software subscriptions you’ve forgotten about, signed up for years ago or months ago, that you don’t even use anymore that are still being charged to your card. You look at it and go, “Where did that subscription come from?”
2. Professional development. Networking groups, BNI, local chamber of commerce. If that’s important to you and it’s bringing in business, it belongs in your break-even.
3. The tax bucket. People forget to include this all the time. “Why would I include my taxes?” Because when you do, you know exactly how much you need to make to be above your break-even line.
The 3 types of break-even
There are 3 different break-evens worth knowing separately.
Survival break-even. The bare minimum to keep the lights on. Just what you need to survive in business.
Operating break-even. Revenue that covers all expenses, but with no owner’s pay. We subtract owner’s pay out of it. It’s worth knowing, but it’s not the number we want to hit.
Target break-even. What you actually need to hit your income goals plus any reserves or goals you have in mind.
Break-even isn’t crazy or foreign. It shouldn’t be stressful. It’s clean and simple. It’s essentially what you need to make to meet your targets. Anything above that is extra money that can go elsewhere, but the break-even is your bare minimum. For me, with all my subscriptions, my OBM, everything in my business, I know I need to make about $3,000 a month, bare minimum, to be successful.
Why break-even isn’t a one-time calculation
It isn’t a one-time calculation. It moves. Every time you hire, every time you add software, every time you change your space or shift your owner’s pay, maybe you add a client and want to shift your owner’s pay, it fluctuates. Break-even goes from $3,000 to $4,000, $4,000 to $5,000 as you add employees and costs. And it goes down as you subtract costs or add income.
Recalculate your break-even quarterly at minimum. Every big business change gives you a fresh number to look at.
Creatives especially tend to underestimate their break-even. Hidden costs get missed. Software subscriptions get missed. Contract labor gets missed. And owner’s pay gets skipped entirely. That’s why when we calculate break-even, you’re already accounting for yourself. You’re already saying you’re going to be making money.
A lot of creative business owners start a business and don’t think about paying themselves. That’s a huge problem. If you’re not paying yourself, you’re missing out on being able to create a business that can support you. And you can, I promise, it’s just a matter of knowing these numbers.
A lot of people say, “I know my numbers, Samantha. I know my revenue, I know my profit.” Those are small pieces of a very large picture. When you’re only looking at certain numbers and you’re not looking at everything that encompasses your business, you’re missing out on so much. That’s where I’m saying you need a finance person, because you as the business owner are often not thinking about these numbers, because you’re looking at your business from a very different perspective than I am.
What changes when you know your break-even
When you know your break-even, a lot of things shift.
Your pricing gets more confident. You know exactly how much you need to make. We can even calculate your break-even per client, which is where we get into profitability. You can say no to bad-fit work more easily, because you can look at a project and say, “We’re not going to break even on this, we can’t take it.”
The anxiety of “am I making enough?” gets replaced by the clarity of “I know exactly what enough looks like.”
Every offer you sell should be priced against a percentage of your monthly break-even, not against what a competitor charges. So instead of, “Mary Sue charges $400, I’ll also charge $400,” you look at your break-even and profitability and say, “I actually need this much to break even. I can afford to bring on this person for $500 a month, that’s my bare minimum.”
Your pricing floor is whatever your break-even math supports. Anything you quote below that is subsidizing the work with your own money. If your break-even is $500 per project and you’re quoting $400, you already know it’s not right.
Break-even reshapes the hiring conversation. Every new team member adds to your break-even. The revenue they enable has to be greater than the added break-even, not just any revenue at all. That’s where confidence comes from in knowing if you can hire. Once we have break-even and we know what to account for, when we bring in a new client, we can say, “Yes, this is going to pay for the employee AND pay me AND pay for everything else,” because we know exactly what chunk of each client goes where.
I did this with a client, we built what we called a ladder. Every client that came in got chunked out. If a client came in at $100, 10% went toward a bump increase for the OBM, 10% went to a savings goal, 25% went to the employee doing the work, and so on. She knew exactly what her break-even was on each client and each project.
Using break-even in negotiations changes what you accept and what you counter. Knowing a project covers 40% of your monthly break-even vs 8% changes everything. If someone says, “That seems a little high,” you can say, “I’m sorry, this is the lowest I can go, that’s not a good fit for you, I completely understand.” It gives you the confidence to say no.
When monthly break-even is the wrong lens
If your revenue is lumpy or seasonal, monthly break-even is the wrong lens. We need to look at annual break-even, divided across your actual earning pattern, which is closer to what a real cash flow forecast does. We look at break-even inside the forecast, it’s part of the bigger picture.
If your break-even is bigger than what you can realistically hit month over month, that’s a structural signal about your business. It’s information you need before you stack more decisions on top of it. If your break-even is $5,000 and you’re only making $3,000, we need to look at what has to go. I’m not someone who’s always saying “cut, cut, cut.” Sometimes cutting is necessary, sometimes it’s not. We look at the bigger picture to determine what will work for us.
Signs you’re running without knowing your break-even
- Pricing that feels arbitrary.
- You take on work you regret.
- Cash feels tight even in months that look good on the P&L. (This is where cash flow forecasting matters, which we talked about last week too.)
Break-even is essential. It’s not an optional number. The math itself takes 30 minutes with clean books, but the impact of knowing the number lasts years, because it changes every decision downstream. It changes your conversations with clients, your pricing, everything.
Real break-even math is one of the first numbers I put in front of a business owner when we start working together. We look at expenses, income, what they want to be paying themselves, whether they’re setting aside for taxes. And if you’ve been operating on estimation instead of a real number, it’s fixable.
That change is going to hit every decision coming downstream, which is exactly what we talk about in Wildfire, alongside profitability, cash flow, and everything else. If you want to have that conversation, we can definitely have it.
Break-even is the foundational number of a business. You either know it, or you don’t and you’re guessing. Guessing costs you money in ways you can’t see until you see the numbers on paper. So many business owners say, “I don’t need to look at it, I don’t need to analyze it, I don’t need to worry about it.” But if you’re not looking, it’s costing you until you actually do.
Once you know the real break-even number, every pricing, hiring, and spending decision after that gets so much easier because you have something to anchor it against. When you have something to anchor your numbers against, you lose that feeling of guessing. You lose the feeling of the unknown. You feel confidence, and you can do things in business in a different way.
As always, if you enjoyed this episode, please like it, share it, subscribe. Tell your friends about the podcast so we can get more listeners on here and keep creating content for you.
If you need anything, reach out on Instagram or email me at samantha@firestormfinance.com. I wish you a fantastic week ahead. We’ll see you next week.
Farewell, my fellow travelers.
For specific legal or tax questions, please consult with a licensed attorney or CPA in your jurisdiction.
