Break-even calculator
Find how many units you must sell to cover your fixed costs, and the sales that takes.
How to use
The break-even point is the number of sales at which revenue exactly covers costs: below it you make a loss, above it a profit. Each unit sold contributes its price minus its variable cost towards the fixed costs, which stay the same however much you sell, such as rent, software and insurance.
The formulas: contribution margin per unit = selling price − variable cost per unit, and contribution margin ratio = contribution margin ÷ selling price. Break-even point in units = fixed costs ÷ contribution margin per unit, and break-even sales = fixed costs ÷ contribution margin ratio. Units for a target profit = (fixed costs + target profit) ÷ contribution margin per unit. These are the standard cost-volume-profit formulas of management accounting.
Units are rounded up, because only whole units can be sold. With 1,500 of fixed costs and a contribution of 8 per unit, 187 units bring in 1,496 and still leave a loss, so the break-even point is 188 units.
The margin of safety compares expected sales with break-even sales: (expected sales − break-even sales) ÷ expected sales. It shows how far sales can fall before the profit disappears; a negative value means the expected sales are below the break-even point.
Use prices and costs without VAT or sales tax, and fixed costs for the same period as the expected sales, for example one month.
Example
The example: a price of 45, a variable cost of 18 and fixed costs of 4,000 give a contribution of 27 per unit, so 149 units cover the costs, 223 reach a profit of 2,000, and 200 expected units leave a 25.93% margin of safety.
Price 28, variable cost 20Contribution margin of 8 per unit, a ratio of 8 ÷ 28 = 28.57%.1,500 ÷ 8 = 187.5Break-even at 188 units; break-even sales are 1,500 ÷ (8 ÷ 28) = 5,250.(1,500 + 500) ÷ 8250 units for a profit of 500.300 units expectedProfit of 300 × 8 − 1,500 = 900, and a margin of safety of (8,400 − 5,250) ÷ 8,400 = 37.5%.
Frequently asked questions
What is the difference between fixed and variable costs?
Variable costs rise with each unit sold: materials, packaging, shipping, payment fees or a sales commission. Fixed costs are paid whatever you sell, such as rent, salaries, software subscriptions and insurance. A cost that is partly both can be split between the two.
Why are break-even sales not exactly the units times the price?
Break-even sales are calculated without rounding: 5,250 is exactly where revenue covers the costs. The units are rounded up to a whole number, so 188 units bring in 5,264, a little more.
What if the price is not higher than the variable cost?
Then no sale contributes anything towards the fixed costs, so there is no break-even point and the calculator asks you to check the values. The price has to rise or the variable cost has to fall first.
Is the contribution margin the same as the profit margin?
No. The contribution margin only subtracts the variable costs. The profit margin also subtracts the fixed costs, so it is lower.