BUSINESS

Break-Even Calculator

The break-even point is where a business covers all its costs and starts to make a profit. This calculator shows how many units you must sell, and how much revenue you need, to get there.

How to use this break-even calculator

1. Enter your fixed costs for one period, usually a month. These are the bills you pay even if you sell nothing: rent, wages, insurance, software and loan payments. Your bank statements and regular bills show them.
2. Enter the price per unit, what a customer pays for one item or one job.
3. Enter the variable cost per unit: the materials, packaging and delivery that go into each single sale. Supplier invoices and postage receipts show these costs.
4. Press Calculate. You will see the contribution margin per unit, the break-even point in units, and the break-even revenue.

A worked example

Say you run a small candle business. Your fixed costs are $9,000 a month, you sell each candle for $40, and each candle costs $22 to make and ship.

Each sale contributes $18 towards the fixed costs. Divide the $9,000 of fixed costs by that $18 margin and the break-even point is 500 candles a month, which brings in $20,000 of revenue.

Every candle after the 500th adds $18 of profit, because the fixed costs are already covered. So the same figures tell you how a strong month plays out: sell 700 candles and the profit for the month is 200 times $18, which is $3,600.

The U.S. Small Business Administration offers free guides on pricing, costs and break-even analysis.

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How this break-even calculator works

Every business has fixed costs, such as rent, salaries and insurance. They stay the same however much you sell, and you must pay them even in a month when you sell nothing at all.

Variable costs are different: they rise with each unit you make or sell, because every unit uses materials, packaging or delivery. The calculator subtracts the variable cost per unit from the price to find the contribution margin, the amount each sale contributes towards covering the fixed costs.

The break-even point is where those contributions finally add up to all of the fixed costs, so total revenue exactly covers total costs and profit is zero. Above that volume, the same margin on each extra sale is no longer needed to cover fixed costs, so it becomes profit instead.

Practical tips

• Redo the calculation whenever your prices or costs change, because the break-even point moves with them.
• There are three levers to lower your break-even point: cut fixed costs, cut variable costs, or raise prices carefully so you do not lose customers.
• Add a safety margin on top of the break-even figure, because breaking even exactly still leaves you with no profit at all.
• Before you launch a product, check the break-even volume against realistic demand, so you know the sales you need are actually achievable.

Frequently asked questions

What is the break-even point?

It is the sales volume where total revenue exactly covers total costs, so profit is zero. Every sale beyond that point adds profit.

What is contribution margin?

It is the price minus the variable cost per unit: the amount each sale contributes to covering the fixed costs.

How can I lower my break-even point?

You can reduce fixed costs, reduce variable costs, or raise prices. Each lever either increases the margin on every sale or shrinks the costs that the margin has to cover.

Does breaking even mean I am making a profit?

No. Breaking even means zero profit: your revenue exactly covers your costs, nothing more. Profit starts with the first sale after the break-even point.