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Your break-even point is the number of units you must sell before you stop losing money and start making a profit. Enter your fixed costs, your price and your variable cost per unit. You can also add a profit target or the sales you expect, and see how far you are from break-even.
How the break-even point is calculated
Break-even is the point where your total sales exactly cover your total costs. The calculator uses these standard formulas:
- Contribution per unit = selling price − variable cost per unit
- Break-even units = fixed costs ÷ contribution per unit (rounded up to a whole unit)
- Break-even sales = break-even units × selling price
- Units for a profit target = (fixed costs + target profit) ÷ contribution per unit
- Margin of safety = (expected units − break-even units) ÷ expected units × 100
Fixed costs stay the same however much you sell, such as rent or software. Variable costs rise with every unit, such as materials, packaging, delivery and payment fees. Use the same time period for fixed costs and for the units you expect, for example one month.
Worked examples
The examples use dollars, but the maths is the same in any currency.
- Find break-even. Fixed costs are $6,000 a month. You sell at $50 and each unit costs $20 to make and ship. Each sale adds $30. Break-even = 6,000 ÷ 30 = 200 units, or $10,000 in sales.
- Add a profit target. You want $3,000 profit a month on the same numbers. Units needed = (6,000 + 3,000) ÷ 30 = 300 units, or $15,000 in sales.
- Check your safety margin. You expect to sell 260 units. Profit = 260 × 30 − 6,000 = $1,800. Your margin of safety is (260 − 200) ÷ 260 = 23.08%, so sales can fall by about that much before you start losing money.
How to lower your break-even point
- Raise your price. Each sale then contributes more towards fixed costs.
- Cut variable costs. Cheaper materials, better supplier terms or lower payment fees increase the contribution per unit.
- Cut fixed costs. A smaller fixed bill means fewer units to cover it.
To test a price change, try the profit margin calculator first to see how much of each sale you keep.
Frequently asked questions
What is a break-even point?
It is the level of sales where you make neither a profit nor a loss. Below it you lose money, and above it every extra unit adds to your profit.
What is the difference between fixed and variable costs?
Fixed costs do not change with the number of units you sell, such as rent. Variable costs change with each unit, such as materials or shipping. Some costs are mixed, so put the part that grows with sales in variable and the rest in fixed.
What if my price is lower than my variable cost?
Then every sale loses money and you can never break even. You need to raise the price or lower the variable cost before selling more.
Why does the calculator round units up?
You cannot sell part of a unit, and 199.2 units would not fully cover your costs. Rounding up gives the first whole number of units at which you are at or above break-even.
Can I use this for more than one product?
This calculator assumes one product at one price. For several products, use an average price and an average variable cost weighted by how many of each you expect to sell.