What Is a Break-Even Point?
Your break-even point is the number of units you must sell for total revenue to equal total costs. Below it you lose money, and above it every sale adds profit. This break-even calculator shows the break-even units, break-even revenue and contribution margin per unit, and it can test a custom sales volume to show profit or loss at that level.
It is useful for pricing new products, writing business plans, planning a side hustle and deciding whether an idea is worth pursuing.
The Break-Even Formula
Contribution margin per unit = Selling Price − Variable Cost per Unit.
Break-even units = Fixed Costs ÷ Contribution Margin per Unit.
Example: your fixed costs are $12,000 per month, each product costs $15 to make and you sell it for $40. Each sale contributes $25 toward fixed costs, so you need to sell 12,000 ÷ 25 = 480 units ($19,200 in revenue) to break even.
Fixed Costs vs. Variable Costs
- Fixed costs stay the same no matter how much you sell, such as rent, salaries, insurance, software subscriptions and loan payments.
- Variable costs rise with each unit sold, such as materials, packaging, shipping, payment processing fees and sales commissions.
Frequently Asked Questions
How can I lower my break-even point?
You can raise your price, reduce the variable cost of each unit or cut fixed costs. Each change increases your contribution margin or reduces what it needs to cover, so you break even with fewer sales.
What happens if my selling price is lower than my variable cost?
Then each sale loses money and you can never break even, no matter how many units you sell. The selling price must be higher than the variable cost per unit.
Is break-even analysis useful for service businesses?
Yes. Treat one billable hour, client or project as a "unit." Use your rate as the selling price and any direct costs per hour or project as the variable cost.