Break-Even Calculator

About the Break-Even Calculator

Every business has costs that arrive whether it sells anything or not — rent, salaries, insurance, software, loan repayments — and costs that rise with every sale, like materials, packaging and shipping. The break-even point is the level of sales at which the money coming in exactly covers both. Below it the business loses money; above it, every extra sale adds profit.

This break-even calculator works out the number of units you need to sell to break even and the sales revenue that represents. It shows the contribution margin each sale makes, the sales needed to reach a target profit, and — if you enter the sales you expect — your margin of safety: how far sales could fall before you start to lose money.

How to Use the Break-Even Calculator

Enter your fixed costs for a period, such as one month. Include everything that does not change with how much you sell.

Enter the price per unit, before sales tax.

Enter the variable cost per unit: everything that goes up with each sale.

Optionally, enter a target profit for the same period.

Optionally, enter your expected sales in units to see the margin of safety.

How the Break-Even Point Is Calculated

  contribution per unit   =  price − variable cost
  contribution ratio      =  contribution ÷ price
  break-even units        =  fixed costs ÷ contribution per unit
  break-even revenue      =  break-even units × price
  units for a profit      =  (fixed costs + target profit) ÷ contribution
  margin of safety        =  (expected − break-even) ÷ expected

Units are rounded up, because you cannot sell part of an item, and selling one unit fewer than the exact figure would still leave a small loss.

Step-by-Step Example

Fixed costs of 5,000 a month, a price of 25 and a variable cost of 13 per unit, a target profit of 2,000, and expected sales of 600 units.

  Contribution:         25 − 13               =  12 per unit (48%)
  Break-even units:     5,000 ÷ 12            =  416.67 → 417 units
  Break-even revenue:   417 × 25              =  10,425
  For 2,000 profit:     (5,000 + 2,000) ÷ 12  =  583.33 → 584 units
  Profit at 600 units:  600 × 12 − 5,000      =  2,200
  Margin of safety:     (600 − 416.67) ÷ 600  =  30.56%

Fixed Costs and Variable Costs

Some costs are a mix. A phone contract has a fixed monthly fee plus charges for extra use; staff costs may be fixed for salaried staff and variable for overtime or piece work. Put each part where it belongs. The more accurately costs are split, the more reliable the break-even point.

Contribution Margin

The contribution margin is the most useful number the calculator produces. It is what each sale leaves over, after its own costs, to pay the fixed costs. Once the fixed costs are covered, it becomes profit.

A low contribution margin means a high break-even point: many sales are needed before any profit appears, and a small drop in sales turns a profit into a loss. Raising the price or cutting the variable cost per unit lowers the break-even point far faster than most people expect. In the example, a price of 27 instead of 25 raises the contribution from 12 to 14 and cuts break-even from 417 to 358 units.

Using the Result

Test prices. Try the price you are considering and see how many sales it needs. If that is more than you can realistically sell, the price or the costs have to change.

Plan new ventures. Before signing a lease or hiring, add the new fixed cost and see how many extra sales it needs to pay for itself.

Watch the margin of safety. A margin of 10% leaves little room for a slow month; 30% or more is more comfortable.

Break-Even for Services

The same method works for a business that sells time rather than products. Treat one billable hour, day or job as the unit.

The price per unit is your hourly or day rate. The variable cost is whatever each hour of work costs you directly, such as materials, travel or a subcontractor. The fixed costs are everything else: rent, insurance, software, equipment and the salary you need to pay yourself.

Break-even then tells you how many billable hours or jobs you need each month. It is worth comparing that with the hours you can realistically bill, allowing for time spent on admin, quoting and finding work. If break-even needs more hours than you can sell, the rate or the costs have to change.

Understanding Your Result

Break-even point is the number of units to sell, rounded up.

Break-even sales is the revenue at that point.

Contribution margin is what each unit contributes, in money and as a share of the price.

For your target profit gives the units and sales needed to reach it.

Margin of safety compares your expected sales with break-even.

Worth knowing shows what each sale above or below break-even is worth.

When Should You Use This Calculator?

Writing a business plan or a loan application.

Setting or changing prices.

Deciding whether to take on a new fixed cost, such as premises or staff.

Launching a product and setting a sales target.

Reviewing a slow period to see how close to break-even you are.

Common Mistakes

Leaving costs out. Every fixed cost missed makes break-even look easier than it is.

Mixing periods. Monthly fixed costs need monthly sales figures.

Including sales tax in the price. Use the price you actually keep.

Rounding down. 416 units would still be a loss in the example; you need 417.

Pricing below variable cost. Then there is no break-even point at all, and selling more only loses more.