How to use the Break-Even Calculator
- Enter your fixed costs for a period, such as a month.
- Enter the price per unit and the variable cost per unit.
- Optionally add expected sales to see your margin of safety, and a target profit to see the units it needs.
- Read the break-even units and revenue, then check the chart and the profit table.
Features
- Break-even point in units and revenue
- Contribution margin per unit and ratio
- Units needed for a target profit
- Margin of safety and profit at expected sales
- Revenue versus cost chart and a profit table with CSV
What the break-even point means
Your break-even point is the sales level where total revenue exactly equals total costs, so you make neither a profit nor a loss. Every unit sold above it adds profit; every unit below it leaves part of your fixed costs uncovered. Knowing it helps you set prices, judge whether a product is viable and plan how much you need to sell each month.
The formulas
- Contribution margin per unit = Price − Variable cost
- Break-even units = Fixed costs ÷ Contribution margin per unit
- Contribution margin ratio = Contribution margin ÷ Price
- Break-even revenue = Fixed costs ÷ Contribution margin ratio
- Units for a target profit = (Fixed costs + Target profit) ÷ Contribution margin
- Margin of safety = Expected sales − Break-even sales
Worked example
A small bakery has fixed costs of 10,000 a month. Each cake sells for 40 and costs 15 in ingredients and packaging. The contribution margin is 25 a cake, so the bakery breaks even at 10,000 ÷ 25 = 400 cakes, or 16,000 in sales. If it expects to sell 600 cakes, the margin of safety is 200 cakes (33.3%) and the expected profit is 600 × 25 − 10,000 = 5,000. To earn 7,500 a month it needs (10,000 + 7,500) ÷ 25 = 700 cakes.
Fixed versus variable costs
| Fixed costs (do not change with sales) | Variable costs (rise with each unit) |
|---|---|
| Rent and property taxes | Raw materials and ingredients |
| Salaried staff | Packaging |
| Insurance and software subscriptions | Shipping for each order |
| Loan repayments and equipment leases | Card and marketplace fees |
Some costs are mixed, such as utilities with a fixed standing charge plus usage. Split them into their fixed and variable parts for the most accurate result.
Ways to lower your break-even point
- Raise the price. Even a small increase goes straight to the contribution margin. At 45 instead of 40, the bakery breaks even at 334 cakes instead of 400.
- Cut variable costs. Buying in bulk or switching to cheaper packaging lifts the margin on every unit.
- Reduce fixed costs. Lower rent or fewer subscriptions mean fewer sales are needed.
A price change also affects demand, so check the effect on expected sales too. To test the profitability of a single item, see the Profit Margin Calculator.
Limits of break-even analysis
The basic model assumes a constant price and variable cost per unit, and that everything produced is sold. In reality, discounts, bulk buying and capacity limits change these over time. For a business with many products, use an average contribution margin weighted by your sales mix.
Results are estimates for information only and are not financial advice.
Frequently asked questions
How do I calculate the break-even point?
Divide your fixed costs by the contribution margin per unit, which is the price minus the variable cost. With fixed costs of 10,000 and a margin of 25 per unit, you break even at 400 units.
What is contribution margin?
It is the amount each sale contributes toward fixed costs and profit: the selling price minus the variable cost of that unit.
What is the margin of safety?
It is how far your expected sales are above the break-even point. It shows how much sales could fall before you start making a loss.
Why must the price be higher than the variable cost?
If each unit costs more to make than it sells for, every sale adds to your losses and there is no break-even point. Raise the price or cut the variable cost first.
Should fixed costs be monthly or yearly?
Either works, as long as you read the result for the same period. Monthly fixed costs give monthly break-even sales.