The break-even point is where total revenue equals total cost, so you neither make nor lose money. The U.S. Small Business Administration describes it as the level of production at which the costs of producing a product equal the revenue from selling it. Every unit you sell contributes its price minus its variable cost toward fixed costs. With $12,000 of fixed costs, a $50 price and $30 of variable cost per unit, you break even at 600 units, or $30,000 of sales.
Add a target profit and the same formula tells you how many units you need to earn it.
How to use the break-even calculator
- Enter fixed costs for a period (a month, say): costs you pay regardless of sales.
- Enter the selling price per unit and the variable cost per unit for the same product.
- Optionally enter a profit you want to earn in that period.
- Read the units and revenue needed. Units are rounded up, because you cannot sell part of a unit.
Formula
Worked example
Fixed costs of $12,000 a month, a $50 price and $30 of variable cost per unit.
- Contribution margin: $50 − $30 = $20 per unit (40% of each sale).
- Break-even: 12,000 ÷ 20 = 600 units.
- Revenue: 600 × $50 = $30,000, the same as 12,000 ÷ 0.40.
To earn $5,000 profit: (12,000 + 5,000) ÷ 20 = 850 units.
Using break-even to make decisions
Break-even analysis shows which lever matters most. Raising the price to $55 cuts break-even to 480 units. Cutting variable cost to $27 cuts it to about 522 units. Each extra $1,000 of fixed cost adds 50 units. If break-even volume is more than you can realistically sell, the plan needs to change before you spend money.
Contribution margin is not the same as gross margin. Gross margin usually uses cost of goods sold, while contribution margin subtracts every cost that varies with volume. Compare with the margin & markup calculator, and use the roi calculator to evaluate a one-off investment.
Break-even with a profit target
To earn a target profit, add it to the fixed costs: units = (fixed costs + target profit) ÷ contribution margin per unit. With $12,000 of fixed costs, a $50 price and a $30 variable cost (a $20 contribution margin), earning $6,000 of profit takes (12,000 + 6,000) ÷ 20 = 900 units.
How price changes the break-even point
| Price | Contribution margin | Break-even units |
|---|---|---|
| $45 | $15 | 800 |
| $50 | $20 | 600 |
| $55 | $25 | 480 |
| $60 | $30 | 400 |
(Fixed costs $12,000, variable cost $30 per unit.) A higher price lowers the break-even point but may sell fewer units, so compare it with realistic demand. The margin & markup calculator converts the same numbers into gross margin and markup.
Caveats and assumptions
- Assumes the price and variable cost per unit stay constant at every volume; discounts and bulk rates change this.
- Assumes a single product, or an average price and cost for a stable product mix.
- Taxes are ignored; a pre-tax profit target is used.
Frequently asked questions
How do you calculate the break-even point?
Divide fixed costs by the contribution margin per unit (price minus variable cost). $12,000 ÷ ($50 − $30) = 600 units.
What is contribution margin?
The amount each unit sold contributes toward fixed costs and profit: selling price minus variable cost per unit.
How do I find break-even in dollars?
Divide fixed costs by the contribution margin ratio (contribution margin ÷ price). $12,000 ÷ 0.40 = $30,000.
What if my price is below the variable cost?
You can never break even. Every sale loses money, so raise the price or reduce variable costs.
Sources
- U.S. Small Business Administration — Break-even point calculator — definition and role in a business plan
- OpenStax Principles of Accounting, Vol. 2 — 3.3 Perform Break-Even Sensitivity Analysis — contribution margin and break-even formulas
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