Break-even calculator

The break-even point

A business breaks even when revenue exactly covers all its costs: no profit, no loss. Costs come in two kinds. Fixed costs stay the same whatever you sell (rent, salaries, software, insurance). Variable costs rise with each unit (materials, packaging, card fees, shipping). Each sale contributes its price minus its variable cost towards the fixed costs; that is the contribution margin.

Worked example

A small shop has $50,000 of fixed costs a year and sells a product for $25 that costs $10 to make and ship. Each unit contributes $15. Break-even is 50,000 ÷ 15 = 3,333.3, so it needs to sell 3,334 units, or $83,350 of revenue. The contribution margin ratio is 60%: 60 cents of every sales dollar goes to fixed costs and then profit.

Using it to plan

• Target a profit: add the profit you want to the fixed costs. For $20,000 of profit, the shop needs (50,000 + 20,000) ÷ 15 = 4,667 units.
• Test prices: raising the price to $28 cuts break-even to 2,778 units.
• Cut variable costs: every dollar saved per unit raises the contribution margin directly.

The contribution margin is the selling price minus the variable cost per unit. Fixed costs divided by that margin give the break-even volume, rounded up to a whole unit. Break-even revenue is that volume times the price, and the contribution margin ratio is the margin divided by the price. The model assumes a constant price and variable cost per unit.