What is a break-even point?
A break-even point is the number of units you need to sell for revenue to cover all your costs, leaving zero profit and zero loss. You find it by dividing fixed costs by the contribution margin, which is price per unit minus variable cost per unit. With 12,000 in fixed costs and 30 earned per unit, you break even at 400 units.
The formula
The calculator needs three inputs:
- Fixed costs: costs that don't change with how much you sell, such as rent, salaries, insurance and software subscriptions, for the period you're planning (a month, a year, a project).
- Price per unit: what each customer pays you, excluding any sales tax you collect.
- Variable cost per unit: costs that rise with each sale, such as materials, packaging, shipping and payment fees.
It then calculates:
- Contribution margin per unit = price − variable cost
- Break-even units = fixed costs ÷ contribution margin, rounded up to the next whole unit
- Break-even revenue = break-even units (rounded up) × price
These are the standard cost-volume-profit formulas; the U.S. Small Business Administration's guide to calculating startup costs walks through the same fixed-cost and break-even approach for new businesses.
Price must be greater than zero, the costs can't be negative, and price must be higher than variable cost. If it isn't, the calculator shows an error, because no amount of sales would ever cover fixed costs.
Worked example
A small business has 12,000 in fixed costs for the year. It sells a product for 50, and each one costs 20 in materials and shipping.
- Enter 12000, 50 and 20.
- Contribution margin = 50 − 20 = 30.00 per unit.
- Break-even units = 12,000 ÷ 30 = 400.
- Break-even revenue = 400 × 50 = 20,000.00.
The 401st unit is the first to make a profit, and it adds 30.
When the answer isn't a whole number
With fixed costs of 10,000, a price of 45 and a variable cost of 18, the contribution margin is 27 and the exact break-even is 10,000 ÷ 27 = 370.37 units. The calculator rounds units up to 371, because selling 370 still leaves a small loss. The revenue shown is what those 371 units bring in: 371 × 45 = 16,695.00. The exact break-even revenue, 370.37 × 45 = 16,666.67, is a little lower, but it isn't a sales figure you can actually reach.
Break-even revenue without unit numbers
If you sell many products, you may not think in units. Divide the contribution margin by the price to get the contribution margin ratio, then:
Break-even revenue = fixed costs ÷ contribution margin ratio
In the first example, 30 ÷ 50 = 0.6, and 12,000 ÷ 0.6 = 20,000, the same revenue the calculator gives because 400 is a whole number of units. When it isn't, this formula gives the exact break-even revenue, slightly below the calculator's whole-unit figure. You can use an average price and average variable cost across your range to get an approximate figure.
How each input moves the result
| Change (from the 12,000 / 50 / 20 example) | Contribution margin | Break-even units |
|---|---|---|
| None | 30 | 400 |
| Price up to 55 | 35 | 343 |
| Variable cost down to 15 | 35 | 343 |
| Fixed costs up to 15,000 | 30 | 500 |
| Price down to 40 | 20 | 600 |
A price cut hurts more than it looks: dropping from 50 to 40 is a 20% cut in price, but it reduces the contribution margin by a third and raises the break-even volume by half.
Limits of a break-even calculation
- It assumes the price and variable cost stay the same at every volume. Bulk discounts from suppliers or volume discounts to customers change both.
- It assumes you sell what you make. Unsold stock still costs money.
- Fixed costs usually step up at some point, for example when you need a second employee or a bigger space.
- It doesn't account for taxes or the time value of money.
Use it as a planning baseline, then rerun it with your expected changes.
Related calculators
- Profit margin calculator: profit, margin and markup on each sale.
- ROI calculator: the return on the money you put into the business.
- Budget calculator: plan the fixed costs you need to cover.
- Discount calculator: see what a sale price does to your per-unit price.
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