Break-Even Calculator
Find the sales volume where revenue finally covers every cost.
About
Break-Even Calculator
Break-even is the point where a business stops losing money and has not yet started making any. Below it, every month eats into cash. Above it, each additional sale drops straight to profit. Knowing where that line sits changes how you price, how you judge a new product, and how nervous you should be about a slow quarter.
The formula
Break-even volume is fixed costs divided by contribution margin:
break-even units = fixed costs ÷ (price - variable cost)
Contribution margin is what one sale leaves behind after paying for itself. Sell something for $50 that costs $20 to make and deliver, and $30 is left to put toward the rent. Divide the rent by that $30 and you have the number of sales the rent requires.
A worked example
A small manufacturer has $30,000 of fixed costs a month. Each unit sells for $50 and costs $20 in materials, packaging and shipping.
- Contribution margin: $50 - $20 = $30 per unit
- Break-even volume: $30,000 ÷ $30 = 1,000 units a month
- Break-even revenue: 1,000 × $50 = $50,000 a month
At 999 units the business loses $30. At 1,001 it makes $30. The line is that sharp because fixed costs do not care about volume.
Fixed costs and variable costs
The split is the part people get wrong, and the whole calculation rests on it.
| Fixed | Variable |
|---|---|
| Rent and rates | Raw materials |
| Salaried staff | Packaging and shipping |
| Insurance | Card processing fees |
| Software subscriptions | Sales commission |
| Loan repayments | Hourly labour tied to output |
Some costs sit awkwardly between the two. A delivery van has a fixed lease and variable fuel. Utilities have a standing charge and a usage charge. Split those in half rather than forcing them into one column, since putting a genuinely variable cost in the fixed pile inflates the break-even point and makes a healthy business look doomed.
Break-even in revenue instead of units
A shop selling four hundred different items has no meaningful unit. The contribution margin ratio handles this: divide the contribution margin by the price to get the share of every sale that survives the variable costs.
In the example above that ratio is $30 ÷ $50 = 60%. Break-even revenue is then fixed costs divided by the ratio: $30,000 ÷ 0.60 = $50,000, matching the unit answer. Restaurants, retailers and agencies almost always work this way, using an average margin across the whole range.
Adding a profit target
Break-even is a floor, and no one runs a business to hit it. Treat the profit you want as another fixed cost:
units needed = (fixed costs + target profit) ÷ contribution margin
Wanting $12,000 of monthly profit from the same business gives ($30,000 + $12,000) ÷ $30 = 1,400 units. That is 40% more volume than break-even, which is worth knowing before promising it to an investor.
Margin of safety
Margin of safety is the gap between what you sell and what you need to sell, as a percentage. Selling 1,200 units against a break-even of 1,000 gives (1,200 - 1,000) ÷ 1,200 = 16.7%. Sales can fall by a sixth before the business is losing money.
A thin margin of safety is what makes a business fragile. Two quiet weeks are survivable at 40%. At 5% they are a crisis, and that is true whatever the profit figure at the bottom of last year's accounts.
What moves the break-even point most
Starting from the same 1,000 units, here is what a 10% change to each input does:
| Change | New break-even | Improvement |
|---|---|---|
| Raise the price 10% ($50 to $55) | 858 units | 14.3% |
| Cut fixed costs 10% ($30,000 to $27,000) | 900 units | 10.0% |
| Cut variable costs 10% ($20 to $18) | 938 units | 6.3% |
Price wins because it lifts the contribution margin by the full $5 while costing nothing. This is why the standard advice to cut costs is often the weakest of the three options available, though it is also the only one that does not risk losing customers.
A service example
A coffee shop pays $8,000 a month in rent, wages and utilities. A coffee sells for $4.50 and the beans, milk and cup cost $1.35.
Contribution margin is $3.15. Break-even is $8,000 ÷ $3.15 = 2,540 cups a month, or about 85 a day. Whether that is comfortable or terrifying depends entirely on the street, and the number gives the owner something concrete to count against.
More than one product
Most businesses sell several things at different margins, and the break-even point then depends on the mix as well as the volume. The fix is a weighted average contribution margin.
A shop sells two items. Item A carries a $30 contribution margin and makes up 60% of units sold; item B carries $12 and makes up 40%. The weighted margin is (0.6 × $30) + (0.4 × $12) = $22.80, so break-even on $30,000 of fixed costs is 1,316 units rather than 1,000.
The catch is that the mix is an assumption, and it moves. A month where customers buy more of the cheap item pushes the real break-even higher without anything else changing. This is why businesses with a wide range recalculate on the revenue basis, using the actual blended margin from last quarter's figures rather than a planned mix.
Break-even on a one-off investment
The same logic answers a different question: how long until a purchase pays for itself. Divide the cost by the extra monthly profit it generates.
A $45,000 machine that lets the business sell 200 more units a month at a $30 contribution margin generates $6,000 of extra profit, so it pays back in 7.5 months. Anything after that is gain, and anything shorter than the machine's useful life makes the purchase defensible.
Payback is a crude measure because it ignores everything past the break-even date and ignores the cost of the money. It is still the first number most owners want, and it is a reasonable filter before a fuller appraisal.
Reading the chart
The chart on this page plots revenue and total cost against volume. Revenue starts at the origin because zero sales bring in nothing. Total cost starts at the fixed-cost level, since the rent is due whether you open or not, and rises more gently than revenue whenever the contribution margin is positive.
The gap between the two lines is the profit or the loss, and it is worth noticing that the gap widens in both directions. Selling half of break-even loses money almost as fast as selling double makes it. The steeper the revenue line relative to the cost line, the more violently profit swings with volume, which is the visual version of operating leverage.
Common mistakes
Mixing time periods. Monthly fixed costs with a yearly sales figure gives an answer twelve times too small. Pick one period and use it throughout.
Forgetting your own wage. A founder who leaves their salary out of fixed costs finds a break-even point that is far too low and a business that cannot pay them.
Treating a negative contribution margin as fixable by volume. If each sale loses money, selling more loses more. No break-even point exists, and the price or the cost has to change first.
Ignoring the tax and card fees. Payment processing of 2.9% plus 30 cents is a variable cost and belongs in the calculation.
Common questions
Frequently asked questions
There is no universal figure, because it depends on what you can realistically sell. The useful test is the margin of safety: how far current sales sit above break-even. A business selling 20% or more above its break-even point can absorb a bad month. One selling 3% above it cannot.
Units answers how many things you must sell; revenue answers how much money must come through the till. They are the same point expressed two ways. Use units when you sell one product, and revenue when you sell many different items at different prices.
Use billable hours as the unit. Fixed costs are rent, salaries and software. The variable cost per hour is whatever an extra hour actually costs you, which for a solo consultant may be close to zero. With little variable cost, break-even is simply fixed costs divided by the hourly rate.
Income tax is charged on profit, so it sits outside break-even by definition: at break-even the profit is zero and so is the tax. Sales tax and VAT are collected on behalf of the government and belong in neither the price nor the costs, so strip them out before you start.
They do, in steps. Hiring a second van or renting a second unit lifts fixed costs suddenly rather than gradually, which pushes the break-even point up to a new level. Recalculate at each step, and be aware that the first months after a step change need noticeably higher volume.
Only when there are no fixed costs at all, which is close to true for someone reselling from home with no rent, no subscriptions and no wages. In that case every sale is profitable from the first one, and the risk sits in unsold stock rather than in monthly overheads.
It cuts the contribution margin, and the effect is bigger than the discount looks. Dropping the $50 price by 10% to $45 leaves a margin of $25 rather than $30, so break-even rises from 1,000 units to 1,200. A 10% discount needs a 20% volume increase just to stand still.
It converts break-even into a revenue figure without needing a unit, and it tells you how much of each additional dollar of sales becomes profit once you are past break-even. A 60% ratio means $6 of every extra $10 sold is profit, since the fixed costs are already covered.