Business calculations
How to calculate break-even
Break-even is the sales level where total revenue exactly covers total costs. At that point, profit is zero: the business has neither earned a profit nor made a loss.
Open the break-even calculatorBreak-even units = fixed costs ÷ (selling price per unit − variable cost per unit)
The amount in parentheses is the contribution margin per unit.
Calculate break-even in four steps
- Total the fixed costs. Include costs that do not change with the number sold, such as rent, base salaries and insurance.
- Find variable cost per unit. Include costs caused by making or selling one more unit, such as materials and per-item fees.
- Subtract variable cost from selling price. This gives contribution margin per unit.
- Divide fixed costs by contribution margin. Round units up to the next whole sale when products cannot be sold fractionally.
Worked example
A small maker has fixed monthly costs of $12,000. One product sells for $50 and has a variable cost of $30.
| Measure | Calculation | Result |
|---|---|---|
| Contribution per unit | $50 − $30 | $20 |
| Break-even units | $12,000 ÷ $20 | 600 units |
| Break-even revenue | 600 × $50 | $30,000 |
At 600 units, revenue is $30,000. Variable costs are $18,000 and fixed costs are $12,000, so total costs also equal $30,000.
Contribution margin ratio and revenue
When you need the answer in sales revenue rather than units, calculate the contribution margin ratio:
Contribution margin ratio = (price − variable cost) ÷ price
Break-even revenue = fixed costs ÷ contribution margin ratio
In the example, the ratio is $20 ÷ $50 = 0.40, or 40%. Break-even revenue is $12,000 ÷ 0.40 = $30,000.
Common mistakes
- Mixing time periods: monthly fixed costs need monthly sales assumptions.
- Treating all labor as fixed: use the portion that changes with output as a variable cost.
- Ignoring sales mix: a single-product formula does not capture several products with different margins.
- Using an impossible margin: if variable cost equals or exceeds price, each sale contributes nothing toward fixed costs.
Break-even analysis is a planning estimate. Taxes, financing, capacity limits, stepped costs and changing prices can alter the real result.
Use the ToolPixels calculator
The free Break-Even Calculator calculates units, revenue and contribution margin from your fixed cost, variable cost per unit and selling price. Enter values from the same period and currency, then use the result as a scenario to test rather than a sales guarantee.