Break-Even Point
Fixed vs variable costs
About This Calculator
The break-even point is where total revenue equals total costs — neither profit nor loss. Understanding break-even helps entrepreneurs determine the minimum sales volume needed to cover costs, set prices, and evaluate business viability. It distinguishes fixed costs (rent, salaries) from variable costs (materials, commissions) that scale with output.
Formula
Break-even units = Fixed Costs / (Price per unit − Variable Cost per unit)
Contribution Margin = Price − Variable Cost per unit
Break-even revenue = Fixed Costs / (Contribution Margin / Price)
Example Calculation
Fixed costs $5,000/month; product sells for $50; variable cost $30 per unit
- Contribution margin = $50 − $30 = $20 per unit
- Break-even units = $5,000 / $20 = 250 units
- Break-even revenue = 250 × $50 = $12,500/month
Must sell 250 units ($12,500 revenue) to break even
Break-Even at Different Price Points (Fixed=$5,000, VC=$30)
| Selling Price | Contribution Margin | Break-Even Units | Break-Even Revenue |
|---|---|---|---|
| $40 | $10 | 500 | $20,000 |
| $50 | $20 | 250 | $12,500 |
| $60 | $30 | 167 | $10,020 |
| $80 | $50 | 100 | $8,000 |
| $100 | $70 | 72 | $7,200 |
Frequently Asked Questions
What is contribution margin?
Contribution margin is the selling price minus variable cost per unit. It represents how much each sale contributes to covering fixed costs and generating profit. A higher contribution margin means you reach break-even faster.
What happens above the break-even point?
Every unit sold above break-even generates profit equal to the contribution margin per unit. So if break-even is 250 units and you sell 350 units, profit = 100 × $20 contribution margin = $2,000.
How does break-even analysis help with pricing?
It shows the trade-off: lower prices need more sales to break even; higher prices need fewer. If you can't realistically reach the required volume, you must either raise prices, cut variable costs, or reduce fixed costs.
What is margin of safety?
Margin of safety = (Actual sales − Break-even sales) / Actual sales × 100%. It shows how far sales can fall before you start losing money. A 30% margin of safety means sales can drop 30% before hitting break-even.