How to use the break-even calculator
The Break-even point tool is for one product, or for an average unit when your products have similar margins. Use monthly figures for everything.
- Fixed costs per month. Costs you pay whether you sell one unit or a thousand: rent, salaries, insurance, software subscriptions, the interest on business loans. Include a fair salary for yourself.
- Selling price per unit. The price you actually receive, after typical discounts.
- Variable cost per unit. Every cost that rises with each sale: materials, packaging, shipping, payment processing fees and sales commission.
- Expected sales (optional) gives the profit and margin of safety at the volume you expect.
- Target profit (optional) gives the units needed to earn it.
The chart plots revenue against total cost; the lines cross at the break-even point. The table lists profit at volumes around it.
The Multi-product tool takes a list of products with their price, variable cost and share of units sold, and finds the break-even volume for the mix.
The formulas
Contribution margin ratio = Contribution margin ÷ Price
Break-even units = Fixed costs ÷ Contribution margin per unit
Break-even revenue = Fixed costs ÷ Contribution margin ratioBreak-even units are rounded up, since you cannot sell part of a unit.
Margin of safety = (Expected units − Break-even units) ÷ Expected units
Units for a target profit = (Fixed costs + Target profit) ÷ Contribution marginThe margin of safety is the share by which sales can fall before the business starts losing money.
With several products, the calculator uses a weighted average:
Total break-even units = Fixed costs ÷ Weighted contribution marginEach product's break-even volume is the total multiplied by its mix share.
A worked example
A small business sells one product for $50. Each unit costs $20 in materials, packaging and fees, so every sale leaves a contribution margin of $30.00, a ratio of 60.0%.
Fixed costs are $30,000 a month. Dividing by $30.00 gives a break-even point of 1,000 units, or $50,000 of sales a month.
The business expects to sell 1,400 units units, which earns $12,000 a month. The margin of safety is 400 units (28.6%): sales could fall 28.6% before the business loses money. To earn $15,000 a month, it would need to sell 1,500 units.
With three products. The same $30,000 of fixed costs, spread over a Basic, Standard and Premium version sold in a 50/35/15 mix, gives a weighted contribution margin of $36.25 per unit. Break-even is 828 units a month across all three, or $51,724 of sales.
What moves the break-even point
Each line changes one input from the single-product example:
| Change | Contribution margin | Break-even units |
|---|---|---|
| The example | $30.00 | 1,000 |
| Price $55 instead of $50 | $35.00 | 858 |
| Price $45 instead of $50 | $25.00 | 1,200 |
| Variable cost $22 instead of $20 | $28.00 | 1,072 |
| Fixed costs $33,000 instead of $30,000 | $30.00 | 1,100 |
A 10% price cut raises break-even by a fifth, from 1,000 to 1,200 units, because the whole $5 comes out of a $30 contribution. That is why discounting is so expensive: to make the same profit after a price cut, volume has to rise far more than the percentage of the discount. A 10% rise in fixed costs, by contrast, raises break-even by exactly 10%.
Why the sales mix matters
With several products, there is no single break-even point, only one for each sales mix. Products with a high contribution margin pull break-even down; low-margin products push it up. If the Premium version’s share of units rose from 15% to 25%, taken from Basic, the weighted contribution margin would rise to $41.55 and break-even would fall to 723 units.
This is also why total sales can grow while profit falls: if the extra sales come from low-margin products, the average contribution per unit drops. The table under the multi-product tool shows each product’s share of total contribution, which is often very different from its share of units.
Break-even and operating leverage
A business whose costs are mostly fixed has a high contribution margin ratio and a high break-even point. Below it, losses mount quickly; above it, each extra sale is mostly profit. A business with mostly variable costs breaks even sooner but earns less from each extra sale. The operating leverage calculator measures this sensitivity directly: at the expected volume in the example, a 1% change in sales changes profit by about 3.5%.
What this calculator does not include
The model assumes a straight line: the price and the variable cost per unit stay the same at every volume, and fixed costs stay fixed. In reality, fixed costs step up when you outgrow your premises or hire another person, suppliers give volume discounts, and higher volumes often need lower prices. Use the result for volumes reasonably close to your current level.
It also ignores timing. Break-even here means monthly profit of zero, not the point where you recover your startup costs; the payback period calculator covers that. And it measures profit, not cash: customers who pay late, inventory bought in advance and loan principal repayments can leave a business short of cash even above break-even.