Quick Answer
The break-even point is the number of units you must sell for total revenue to exactly equal total costs, calculated as Break-Even Units = Fixed Costs ÷ (Selling Price per Unit − Variable Cost per Unit).
What Is Break-Even?
Break-even analysis tells you the exact point where a business stops losing money and starts being profitable, the sales volume at which total revenue equals total costs, leaving zero profit and zero loss. Every unit sold beyond the break-even point contributes directly to profit; every unit short of it means the business is operating at a loss.
The calculation separates costs into two types. Fixed costs stay the same regardless of how much you sell, rent, salaries, insurance, loan payments. Variable costs rise and fall directly with production or sales volume, raw materials, packaging, shipping, sales commissions. The gap between your selling price and your variable cost per unit is called the contribution margin, and it's this margin that gradually pays off your fixed costs until you cross into profit.
Break-even analysis is one of the first calculations any new business, product launch, or pricing decision should go through, it turns 'will this work?' into a concrete, testable number: how many units, or how much revenue, do we actually need?
How to Use
- 1Enter your total fixed costs, all expenses that don't change with production volume.
- 2Enter your selling price per unit.
- 3Enter your variable cost per unit, the direct cost to produce or deliver one unit.
- 4The calculator instantly shows your break-even point in units, the revenue needed to reach it, and your contribution margin per unit.
Formula
CM = Selling Price per Unit − Variable Cost per UnitBEP (units) = Fixed Costs ÷ CMBEP (revenue) = BEP (units) × Selling Price per UnitExample: Fixed costs of 50,000, selling price 100 per unit, variable cost 60 per unit
- Contribution Margin = 100 − 60 = 40 per unit
- Break-Even Units = 50,000 ÷ 40 = 1,250 units
- Break-Even Revenue = 1,250 × 100 = 125,000
Tips & Things to Know
- If your variable cost per unit is ever higher than your selling price, the contribution margin is negative, you lose more money with every unit sold, and no sales volume can reach break-even until pricing or costs change.
- Break-even in units is more useful for single-product businesses; for multi-product businesses, break-even in revenue (using an average or weighted contribution margin) is usually more practical.
- Lowering fixed costs (renegotiating rent, cutting a subscription) reduces your break-even point immediately and permanently, often a faster fix than trying to raise prices or volume.
- Recalculate your break-even point whenever a major cost changes, a new supplier, a rent increase, or a pricing change all shift the number, sometimes significantly.
- The 'margin of safety', how far your actual expected sales are above the break-even point, tells you how much sales can drop before you start losing money. A thin margin of safety is a warning sign.