Breakeven is the point where money coming in equals money going out. For a home kitchen it answers a specific, useful question: how many boxes do I have to sell this month before I start actually earning?
The two kinds of cost
Every peso you spend is either fixed or variable, and the split is what makes the formula work.
Variable costs scale with each unit you make. Ingredients, packaging, the delivery fee on that order, payment processing. Make nothing, spend nothing.
Fixed costs arrive whether you sell one box or four hundred. Rent or the share of it your kitchen occupies, salaries including your own if you pay yourself, subscriptions, permits, internet, insurance.
Home businesses habitually undercount fixed costs, because so many of them don't look like business expenses. If you'd stop paying it the day you shut down, it's a fixed cost.
Contribution margin
Take one unit's selling price and subtract its variable cost. What's left is the contribution margin — the amount that unit contributes toward covering your fixed costs.
Sell a box for ₱450 that costs ₱180 in ingredients and packaging, and each box contributes ₱270. That is not profit. It's the money available to pay the rent before any of it becomes profit.
The formula
Breakeven units = Fixed Costs ÷ (Revenue per Unit − Variable Cost per Unit)
With ₱27,000 of monthly fixed costs and ₱270 contribution per box: 27,000 ÷ 270 = 100 boxes a month. Box 101 is where you begin earning. At 25 working days that's four boxes a day, every day, which is the sort of number worth knowing before you commit to a stall.
The part most calculations skip: equipment
You bought a ₱60,000 deck oven. It isn't a variable cost — it doesn't scale per box. But charging the whole ₱60,000 to the month you bought it is equally wrong; it will serve you for years, and a single catastrophic month tells you nothing useful.
Spread it. Pick a sensible service life and divide:
- ₱60,000 oven over 5 years (60 months) = ₱1,000 per month
- ₱18,000 mixer over 3 years (36 months) = ₱500 per month
That ₱1,500 a month joins your fixed costs, and your breakeven moves from 100 boxes to about 106. This is depreciation, and leaving it out is the most common way a home business believes it's profitable while its equipment quietly wears out unfunded.
Breakeven is not the same as cash
Two different questions hide here, and conflating them is what causes a business that's "doing fine on paper" to run out of money.
Operating breakeven is the monthly figure above — the point where a given month washes its face.
Total cash needed is what you have to have in hand to get there. You pay for the oven up front, and you cover the shortfall every month until sales reach breakeven:
Total cash = Capital Investment + (Monthly Fixed Costs × Months to Breakeven)
Buy ₱78,000 of equipment, carry ₱27,000 of fixed costs, and expect four months to reach 100 boxes a month, and you need ₱78,000 + ₱108,000 = ₱186,000 before you start. Not ₱78,000. Businesses that fund only the equipment tend to fail in month three, while sales are still climbing.
What to do when the number looks bad
A breakeven you can't hit is information, not a verdict. There are only four levers, and they aren't equally easy:
- Raise the price. The fastest lever by a distance — it moves contribution peso for peso. A ₱30 increase on a ₱270 contribution drops breakeven by 10%.
- Cut variable cost. Cheaper packaging, better supplier terms, less waste. Works, but each peso is harder to find than a peso of price.
- Cut fixed cost. Usually the largest single line is space. Painful, and often not available.
- Change the mix. If one product contributes ₱270 and another ₱90, selling more of the first moves breakeven without changing a single price.
Run the numbers before you scale, not after. The most expensive version of this lesson is discovering at 300 boxes a month that the margin was never there.