What this calculator does
Break-even is the volume at which total revenue exactly covers total costs. Below it a business runs at a loss; above it, every additional unit contributes its full contribution margin to profit. It is the single most useful number for judging whether a product, a price or a whole venture is viable.
The mechanism is the contribution margin: the price less the variable cost of producing one more unit. That is what each sale contributes toward the fixed costs. Divide the fixed costs by it and you have the number of units that must be sold before anything is earned.
The formula
Fixed costs stay the same regardless of volume; variable costs rise with each unit. Each sale contributes price minus variable cost, so the volume that covers the fixed base is fixed costs divided by the contribution margin.
| Term | Meaning |
|---|---|
| Fixed costs | Costs that do not change with volume: rent, salaries, insurance, software. |
| Variable cost | The cost of producing one more unit: materials, freight, transaction fees. |
| Contribution margin | Price less variable cost: what each sale contributes to fixed costs and profit. |
| Margin of safety | How far sales can fall below expectations before you hit break-even. |
The inputs explained
| Field | What to enter |
|---|---|
| Fixed costs ($) | Total fixed costs for the period: usually a year. Include rent, salaries, insurance and anything else that is payable whether or not you sell anything. |
| Price per unit ($) | Your selling price per unit, excluding sales tax. |
| Variable cost per unit ($) | The cost of one additional unit. Include materials, packaging, freight and payment processing fees. |
| Units you expect to sell | The volume you expect to sell in the same period as the fixed costs. |
When to use it
Testing a business idea
Estimate the fixed costs and the unit economics, then look at the break-even volume. The honest question is whether that many units is plausible in your market: often the answer settles the idea before any money is spent.
Deciding whether to cut the price
A lower price cuts the contribution margin and raises the break-even volume, sometimes sharply. Run both prices and check whether the extra volume you expect actually clears the higher hurdle.
Justifying a fixed-cost increase
A new hire, a bigger space or a software subscription raises the fixed base. The change in break-even units tells you how much extra you need to sell simply to stand still.
Assessing how much risk you carry
The margin of safety shows how far sales can fall before losses start. A thin margin of safety means the business is fragile even if it is currently profitable.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How the price changes break-even
With fixed costs of $50,000 and a $10 variable cost per unit, only the price changes.
| Price per unit | Break-even units | Break-even revenue | Contribution margin per unit |
|---|---|---|---|
| $12 | 25,000 | $300,000.00 | $2.00 (16.7%) |
| $15 | 10,000 | $150,000.00 | $5.00 (33.3%) |
| $20 | 5,000 | $100,000.00 | $10.00 (50.0%) |
| $25 | 3,333 | $83,333.33 | $15.00 (60.0%) |
| $35 | 2,000 | $70,000.00 | $25.00 (71.4%) |
| $50 | 1,250 | $62,500.00 | $40.00 (80.0%) |
The effect of fixed costs
A $15 contribution margin against different levels of fixed cost.
| Fixed costs | Break-even units | Profit at 5,000 units | Margin of safety |
|---|---|---|---|
| $20,000 | 1,333 | $55,000.00 | 73.3% |
| $40,000 | 2,667 | $35,000.00 | 46.7% |
| $50,000 | 3,333 | $25,000.00 | 33.3% |
| $60,000 | 4,000 | $15,000.00 | 20.0% |
| $75,000 | 5,000 | $0.00 | 0.000% |
| $90,000 | 6,000 | −$15,000.00 | -20.0% |
How the variable cost squeezes the model
Rising input costs at a fixed selling price.
| Variable cost | Break-even units | Contribution margin per unit | Profit at 5,000 units |
|---|---|---|---|
| $5 | 2,500 | $20.00 (80.0%) | $50,000.00 |
| $10 | 3,333 | $15.00 (60.0%) | $25,000.00 |
| $15 | 5,000 | $10.00 (40.0%) | $0.00 |
| $18 | 7,143 | $7.00 (28.0%) | −$15,000.00 |
| $20 | 10,000 | $5.00 (20.0%) | −$25,000.00 |
| $22 | 16,667 | $3.00 (12.0%) | −$35,000.00 |
Questions
What counts as a fixed cost?
Anything payable regardless of how much you sell: rent, permanent salaries, insurance, software subscriptions, loan repayments. If it appears on the bill whether you sell one unit or a thousand, it is fixed.
What if I sell several different products?
Use a weighted average contribution margin across your product mix, or run the calculation per product line with fixed costs allocated between them. Neither is perfect, but the per-line version is usually more informative.
Why is my break-even revenue higher than my fixed costs?
Because revenue must cover both the fixed costs and the variable costs of every unit sold. Only the contribution margin portion of revenue goes toward the fixed base.
Does break-even include my own wage?
It should, if you need to be paid. Leaving the owner’s income out of fixed costs produces a break-even point that looks achievable but leaves nothing to live on.
What is a healthy margin of safety?
There is no universal figure, but a business operating close to break-even has little room for a bad quarter. The wider the margin, the more shock the business can absorb.
To set the price in the first place, use the margin and markup calculator. For project-level appraisal, see NPV and IRR.