Break-Even Point Calculator
Every unit contributes something towards the fixed costs. Break-even is where those contributions have covered them, and everything sold after that is profit.
Units to break even
889units
- Units to break even
- 889
- Revenue at that point
- $40,000.00
- Contribution per unit
- $27.00
- Fixed costs
- $24,000.00
- Units a month for a year
- 75
- Contribution per unit is the price less the variable cost — what each sale puts towards the fixed costs. Break-even is simply the fixed costs divided by it.
- What counts as fixed depends on the horizon. Rent is fixed over a month and negotiable over a year, and staff sit somewhere between. Say which you have assumed before quoting the number to anyone.
About the break-even calculator
Split your costs in two. Variable costs happen per unit — materials, packaging, the payment fee. Fixed costs happen whether you sell anything or not: rent, salaries, insurance, software. The gap between price and variable cost is what each sale contributes towards the fixed pile.
At $45 a unit with $18 of variable cost, each sale contributes $27. Against $24,000 of annual fixed costs, that is 889 units before you make a penny — about 75 a month.
The important consequence is that contribution matters more than price. Raising the price by $5 raises contribution by $5, which is nearly a fifth, and cuts the break-even by around 140 units. Cutting the variable cost by $5 does exactly the same. Both move the number far more than a proportional change in fixed costs would.
If contribution is zero or negative, no volume will save you — every unit sold loses money and selling more loses more. That is a genuinely useful answer and it is worth checking before working on anything else.
The model assumes both costs are stable, which they are not indefinitely. Volume discounts lower variable cost as you grow; more space and staff raise fixed costs in steps. Break-even is a snapshot at your current shape.
What it works out
- Units needed to cover fixed costs
- Revenue at the break-even point
- Contribution per unit
- A monthly figure across a year
The formula
Units = Fixed costs ÷ (Price − Variable cost)
The denominator is the contribution margin — what each unit puts towards the fixed costs. $45 less $18 is $27.
$24,000 divided by $27 is 889 units, which at $45 each is $40,000 of revenue. Across a year that is 75 units a month.
What makes this useful is testing changes against it. Add $5 to the price and contribution goes to $32, taking break-even down to 750 units — a 16% reduction from an 11% price rise. Take $5 off the variable cost and you get exactly the same result, because the formula only sees the gap between them.
Compare that with fixed costs, where the relationship is proportional: cutting them 10% cuts break-even 10%. Contribution is the lever with leverage.
The catch is that a price rise may cost you volume, and the formula cannot see that. It tells you how many you need to sell, not how many you will.
- Fixed costs
- Costs that do not change with sales volume. Usually annual or monthly.
- Price
- What you sell one unit for.
- Variable cost
- What one unit costs you — materials, packaging, transaction fees.
- Contribution
- Price less variable cost. What each sale puts towards the fixed pile.
A worked example
$24,000 of fixed costs, selling at $45 a unit against $18 of variable cost.
That works out to 889 units.
- Units to break even
- 889
- Revenue at that point
- $40,000.00
- Contribution per unit
- $27.00
- Fixed costs
- $24,000.00
- Units a month for a year
- 75
Questions
How do I calculate the break-even point?
Divide fixed costs by the contribution per unit — price less variable cost. $24,000 of fixed costs with $27 of contribution is 889 units.
What is contribution margin?
What each sale contributes towards fixed costs, after its own variable costs are paid. It is the number that drives break-even, and it matters more than either the price or the cost on its own.
What counts as a fixed cost?
Anything you pay whether or not you sell: rent, salaries, insurance, software subscriptions, accountancy. Anything that scales with each sale — materials, packaging, payment fees, commission — is variable.
What if my contribution is negative?
Then there is no break-even. Every unit loses money and selling more loses more. The answer is a higher price or a lower cost, and no amount of volume substitutes for either.
Is it better to raise the price or cut costs?
Arithmetically identical — the formula only sees the gap. Practically, a price rise risks volume while a cost cut does not, but cost cuts are usually harder to find. Most businesses have more room in price than they think.
Does this include tax?
No. Break-even here is on operating costs, before tax. Tax is charged on profit, so it does not affect the point at which profit begins.
How do I handle several products?
Use a weighted average contribution across your actual sales mix, and remember the answer moves whenever the mix does. For very different products it is usually clearer to allocate fixed costs and work each one out separately.