Break-even formulas
Contribution per unit = Price − Variable cost
Break-even units = Fixed costs ÷ Contribution per unit
Break-even revenue = Break-even units × Price
Units for a target profit = (Fixed costs + Target profit) ÷ Contribution per unit
The calculator rounds units up, because you can't sell part of a product and falling one sale short still means a loss.
Fixed costs and variable costs
Fixed costs stay the same whether you sell one item or a thousand: rent, salaries, insurance, loan payments and software subscriptions. Variable costs rise with every sale: materials, packaging, shipping, payment fees and sales commission. Use the same time period for fixed costs and for the answer you want. If you enter monthly rent, the result is the number of sales you need each month.
Worked example
A small bakery has 12,000 of fixed costs a month. A celebration cake sells for 50 and costs 30 in ingredients and boxes. Each cake contributes 20 towards fixed costs, so the bakery needs 12,000 ÷ 20 = 600 cakes a month to break even, which is 30,000 in sales. To make 4,000 profit on top, it needs 800 cakes.
Contribution margin ratio
This is the share of each sale left after variable costs. In the example, 20 ÷ 50 = 40%. It is useful when you sell many products at different prices: divide your fixed costs by the average ratio to get the revenue you need, without counting units.
Three ways to break even sooner
You can raise your price, cut your variable cost per unit, or lower your fixed costs. Try each one in the calculator. Small changes to price usually have the biggest effect, because the whole increase goes straight into contribution. In the bakery example, raising the price from 50 to 55 cuts the break-even point from 600 cakes to 480.
Frequently asked questions
What is a break-even point?
It is the level of sales where total revenue equals total costs, so the business makes neither a profit nor a loss.
Why does the calculator show an error?
If the price is equal to or lower than the variable cost, each sale loses money, so there is no break-even point.
Should I include my own salary in fixed costs?
Yes, if you want the result to show when the business can pay you. Otherwise the break-even point will look better than it is.
How often should I recalculate break-even?
Whenever your prices, supplier costs or overheads change, and at least once a year.
Is break-even the same as payback period?
No. Payback period is how long it takes to recover an upfront investment. Break-even is about covering ongoing costs.
Last reviewed on by the Dailycaltor team.