Break-even formula
Contribution margin = Price − Variable cost
Break-even units = Fixed costs ÷ Contribution margin
Units for target profit = (Fixed costs + Target profit) ÷ Contribution margin
Break-even units = Fixed costs ÷ Contribution margin
Units for target profit = (Fixed costs + Target profit) ÷ Contribution margin
Example: Fixed costs are $10,000 a month, the price is $50 and variable cost $30. Each sale contributes $20 (a 40% contribution margin ratio), so you break even at 500 units or $25,000 in sales. To make a $5,000 profit you need 750 units ($37,500).
Using break-even analysis
- Test price changes: at $55, break-even drops to 400 units.
- Check whether a new hire or bigger office is worth it by adding its cost to fixed costs.
- Compare with realistic sales forecasts before launching a product.
Set the price itself with the markup calculator.
Frequently asked questions
How do I calculate the break-even point?
Break-even units = fixed costs ÷ (price − variable cost per unit). With $10,000 of fixed costs, a $50 price and $30 of variable cost, you need 10,000 ÷ 20 = 500 units.
What is contribution margin?
The amount each sale contributes toward fixed costs and profit: price minus variable cost. The contribution margin ratio is that amount divided by the price.
What counts as a fixed cost?
Costs that do not change with sales volume in the short term: rent, salaries, insurance, software subscriptions, loan payments.
How can I lower my break-even point?
Raise prices, reduce variable costs (better supplier terms, cheaper shipping) or cut fixed costs. A higher price often has the biggest effect.