Foundation 19 of 20 · Analyze
How to Calculate Your Break-Even Point Before You Buy
Do the Math Before the Machine.
"How do I know if a new machine will pay for itself?" If the new equipment is beautiful and the monthly payment is small, it is the perfect moment to stop and count. Here is how to calculate your break-even point, and how to compare leasing, buying new, and buying used.
Last Updated: 10/25/2026 · Written by Dr. Paul Borosky, DBA, MBA
The Short Answer
How Do You Calculate a Break-Even Point?
Textbook Definition
The break-even point is the level of sales at which total revenue equals total costs. In units, it is calculated as fixed costs divided by contribution margin per unit, where contribution margin is price minus variable cost per unit.
In Plain English
Take the new monthly cost, like an equipment payment. Divide it by what each sale or job leaves after its own costs. That is how many new sales a month it takes just to pay for the thing. Only count work the purchase adds, not work you already have.
Why It Matters
Why Do Owners Buy Equipment That Never Pays for Itself?
Because they buy when they finally can, not when the numbers say they should. For the first time in years there is money in the account, the machine is right there, and the payment sounds small. That is exactly the moment to count.
A new machine, location, or hire adds fixed costs: a payment that stays the same whether you do one job or a hundred. If the new work it brings in cannot cover that, the business is worse off, no matter how good the equipment is. Break-even tells you before you sign.
Signs you have this problem:
- You chose equipment by the monthly payment.
- You do not know how many jobs a month a purchase needs to pay for itself.
- You counted work you already do as proof a machine will pay off.
- You signed a lease without checking who owns the equipment at the end.
- You never priced a used option.
- You bought something because you could finally afford it.
What It Looks Like
What It Looks Like When the Machine Comes Before the Math
From the Fabled Forest · Chapter 19
Alton the Ant finally has money in the business account, and he has spent all night in front of a brass diagnostic machine at the equipment fair. Talon and Beak's crow offered it on a lease: no money down, fifteen coins a month. Alton heard music.
Pippa asked her short, exact questions. Each diagnostic job left four coins after parts. Fifteen divided by four meant four new jobs a month, and the four they already did did not count. Over thirty-six months the lease cost 540 coins for a 300-coin machine, and at the end Talon and Beak owned it.
Buying new over a year needed seven new jobs a month. Then Pippa found last year's model at the general store: 156 coins over a year. It would free about seven hours a month for the repairs already waiting on the shelf, which covered the payment without a single new job.
Alton's story is Chapter 19 of Accounting and Finance for Small Businesses, Book 2 of Dr. Paul's Fabled Forest Business School Series.
The Fix
How to Calculate Your Break-Even Point in 5 Steps
Run this for every option before you sign anything: lease, buy new, buy used.
Find what each sale or job leaves.
Price minus the costs that come with each job, like parts and materials. That is the contribution per job. A $60 job with $20 of parts leaves $40.
Write down the new monthly fixed cost.
The lease or loan payment, plus any new insurance, maintenance contract, or software fee the purchase adds.
Divide the fixed cost by the contribution per job.
That is your break-even point: how many new jobs a month it takes just to pay for the purchase. Round up. You cannot do three-quarters of a job.
Count only what the purchase adds.
New jobs you could not do before, or hours it frees for paid work you are turning away. Work you already have does not count. It was paying you before the machine arrived.
Run it three ways: lease, buy new, buy used.
Compare the monthly payment, the total paid, the break-even number, and who owns it at the end. This is lease vs. buy, with the used option most owners forget.
Dr. Paul's Insight
Leasing is not always a trap. It can be the right call for equipment that goes out of date quickly or that you only need for a while. The trap is leasing only because the monthly number is small. Paying for something over time is one decision. Renting it forever is another. Before any lease, find the total of all payments and read what happens at the end of the term.
Sample: A Lease vs. Buy Break-Even Table
Fill in one row per option. Then compare the last two columns.
| Option | Monthly payment | Total paid | New jobs to break even | At the end |
|---|---|---|---|---|
| Lease new, 36 months | $150 | $5,400 | 4 | Lender owns it |
| Buy new, 12 months | $250 | $3,000 | 7 | You own it |
| Buy used, 12 months | $130 | $1,560 | 4, or 7 freed hours | You own it |
Sample for illustration. Count only new work or freed hours, never work you already had.
The Shortcut That Costs More
Lease Everything and Sign for the Smallest Payment?
In the book, a company called Talon and Beak keeps offering owners shortcuts. Every one sounds reasonable. Every one works for a while. Every one costs more than it saves. Here is the one in Chapter 19.
Lease every piece of equipment and always choose whatever makes this month's payment smallest.
Cash looks fine every month, and the new machine arrives by Friday.
You pay for years for something you will never own, at a total you never added up, and at the end of the term you sign again.
A small payment is not a small cost. Add up the total, check who owns it at the end, and price a used option before you sign.
Watch
Video: How to Know If New Equipment Will Pay for Itself
How to Calculate Your Break-Even Point Before You Buy
Dr. Paul runs break-even on a lease, a new purchase, and a used purchase on screen.
From the Book
A Very Small Number
Chapter 19 · Break-Even Analysis
The Machine Before the Math: An Ant's Upgrade
"Fifteen a month," said Alton, as if it were music.
"Fifteen a month," Cornelius agreed. "For thirty-six months. A very small number."
"How much is the machine to buy?" asked Doctor Owl.
What did fifteen a month really add up to, and which machine did Alton finally choose? Find out in Chapter 19. Book 2 of Dr. Paul's Fabled Forest Business School Series.
Get the Book on Amazon →FAQ
Break-Even Questions
What is the break-even formula?
What is the difference between fixed and variable costs?
How do I know if new equipment will pay for itself?
Is it better to lease or buy equipment?
Keep Going
Related Foundations
Break-even connects four foundations, from unit cost to return on investment. New to a term on this page? Every one is in the accounting and finance glossary.
Foundation 7 · Cost of Goods Sold
Your unit cost is what you subtract to find what each job leaves.
Foundation 15 · Discounting and Contribution Margin
Contribution margin per job is the bottom half of the formula.
Foundation 18 · Return on Investment
ROI shows what the purchase brings back once it breaks even.
Foundation 17 · Debt and Leverage
If you borrow for the purchase, make sure it is good debt.
Written by Dr. Paul Borosky, DBA, MBA, business consultant, author, and educator with an MBA focused in finance. Want help running the numbers before you sign for equipment? See fractional CFO services.
This page is for general educational purposes only. It is not legal, financial, tax, accounting, or lending advice. Tax rules change by place and by year. Dollar figures are illustrations. The Fabled Forest and its characters are fictional. For decisions about your own business, consult a qualified professional.