Bhuvan PoudelHow break-even is calculated
Break-even units = fixed costs ÷ (price − variable cost per unit). Break-even revenue = fixed costs ÷ contribution margin ratio. Target units = (fixed costs + target profit) ÷ contribution margin per unit.
- Add fixed costs for one period, such as a month or year.
- Subtract variable cost per unit from selling price to find contribution margin.
- Divide fixed costs by contribution margin. Round up if you sell whole units.
- Add a profit target or compare expected sales with the unrounded break-even point.
Worked example: Fixed costs of 10,000, price of 50 and variable cost of 30 give a contribution margin of 20, or 40%. Then 10,000 ÷ (50 − 30) = 500 units and 25,000 revenue. A 5,000 profit target needs 750 units and 37,500 revenue. At 800 expected units, the margin of safety is 300 units, 15,000 revenue and 37.5%.
Break-even examples
| Fixed costs | Unit price | Variable cost | Break-even units, rounded up | Break-even revenue, exact threshold | Contribution margin per unit | Contribution margin ratio |
|---|---|---|---|---|---|---|
| 10,000 | 50 | 30 | 500 units | 25,000 | 20 | 40% |
| 5,000 | 20 | 12 | 625 units | 12,500 | 8 | 40% |
| 50,000 | 120 | 70 | 1,000 units | 120,000 | 50 | 41.67% |
| 2,000 | 15 | 5 | 200 units | 3,000 | 10 | 66.67% |
Swipe the table sideways to see the rest.
All amounts use the same currency. No target profit is included.
Things to consider
- Keep fixed costs and expected sales in the same period.
- Include payment fees, packaging and other costs that grow with each sale.
- Use a weighted contribution margin for a stable product mix. This tool models one unit price.
- A negative margin of safety means expected sales are below break-even.
- Break-even is not a cash-flow forecast. Payment timing, taxes and capacity changes may matter.
Frequently asked questions
What does break-even mean?
Break-even is where sales revenue equals total fixed and variable costs. There is no profit or loss under the model. Above that point, each additional unit contributes toward profit.
What is the break-even formula?
Divide fixed costs by selling price less variable cost per unit. For revenue, divide fixed costs by the contribution margin ratio. The calculator shows the exact unit threshold and rounds up for whole-unit sales.
What is contribution margin?
Contribution margin is selling price less variable cost per unit. Its ratio is contribution margin divided by selling price. It covers fixed costs first, then profit. The Margin Calculator: Profit Margin and Markup compares selling price with the cost you enter; include the right costs for your purpose.
How can I lower my break-even point?
Reduce fixed costs, reduce variable cost per unit or increase price. Consider how a price change may affect sales. The ROI Calculator: Return on Investment can help compare the return on a cost-saving investment.
What are fixed and variable costs?
Fixed costs stay broadly unchanged within a relevant sales range, such as rent or a flat software subscription. Variable costs grow with sales, such as materials, packaging and per-sale fees. Some costs have both parts.
What is margin of safety?
It is expected sales less the unrounded break-even threshold. Divide that difference by expected sales to get the percentage. Positive values show room for sales to fall; negative values show a shortfall. At zero expected sales, the percentage is undefined.