Break-even formula
The denominator is the contribution margin — what each sale contributes toward fixed costs. Once fixed costs are covered, each further unit adds its contribution margin to profit.
Example
With $5,000 of monthly fixed costs, a $25 price and $10 of variable cost per unit, each sale contributes $15. You need 334 units (5,000 ÷ 15, rounded up) — about $8,350 in sales — to break even.
Fixed vs. variable costs
- Fixed costs don’t change with volume in the short term: rent, salaries, insurance, software subscriptions, loan payments.
- Variable costs rise with each unit: materials, packaging, shipping, payment processing and sales commissions.
Ways to lower your break-even point
- Raise prices — even small increases can cut break-even volume sharply.
- Negotiate supplier costs to lower variable cost per unit.
- Trim or defer fixed overhead.
Related Business & Profitability Tools
Operating past the break-even threshold enables sustainable commercial scale. Audit operational margins and overhead with our Business Profit Calculator, project capital expenditure yields via the ROI Calculator, manage corporate cash-flow using the Budget Calculator, and factor in retail sales taxation with the Sales Tax Calculator.
Frequently asked questions
What does it mean if price is below variable cost?
Every sale loses money, so you can never break even no matter how much you sell. You need to raise the price or cut per-unit costs.
How do I include a profit target?
Enter the profit you want in the target field. The units needed become (fixed costs + target profit) ÷ contribution margin.
Does break-even analysis work for service businesses?
Yes — treat a billable hour, project or client as the unit, and use the costs directly tied to delivering it as the variable cost.