How to use the break-even calculator
- 1Add up your fixed costs for one month: rent, salaries, software, insurance, loan repayments and anything else you pay whether you sell or not.
- 2Enter the price you charge for one unit, before sales tax or VAT.
- 3Enter the variable cost of one unit: materials or stock, packaging, shipping you pay, and per-sale fees.
- 4Read your break-even units and revenue, plus the contribution each sale makes towards fixed costs.
- 5Optionally enter a monthly profit target to see how many units you need to sell to earn it.
What the break-even point tells you
Your break-even point is the number of sales at which total revenue equals total costs. Below it you lose money each month; every sale above it adds to profit.
It is one of the most useful numbers to know before you open, launch a product, hire or sign a lease, because it turns a cost into a sales target you can judge. "We need $5,400 a month" is hard to picture; "we need to sell 200 units a month, about 7 a day" is easy to test against reality.
Break-even units = Fixed costs ÷ (Price − Variable cost per unit)
Contribution margin
Each sale contributes the price minus its variable cost towards your fixed costs. That amount is the contribution margin per unit. Divided by the price, it becomes the contribution margin ratio: the share of each sale that goes to fixed costs and then profit.
If your contribution margin is zero or negative, you cannot break even at any volume. Selling more only loses more money, so the price or the variable cost has to change first.
Contribution margin ratio = (Price − Variable cost) ÷ Price × 100
Break-even revenue and profit targets
Break-even revenue is the sales total you need, useful when you sell many products at different prices. Divide fixed costs by the contribution margin ratio.
To aim for a profit rather than just covering costs, add the profit you want to the fixed costs and divide by the contribution margin per unit. Units are rounded up, since you cannot sell part of one.
Units for target = (Fixed costs + Target profit) ÷ Contribution margin per unit
Worked example
A small studio sells handmade mugs for $45. Each mug costs $18 in clay, glaze, firing and packaging, and the studio pays $5,400 a month in rent, utilities and software.
| Fixed costs per month | $5,400.00 |
| Price per mug | $45.00 |
| Variable cost per mug | $18.00 |
| Contribution margin per mug | $27.00 |
| Contribution margin ratio | 60% |
| Break-even units | 200 mugs |
| Break-even revenue | $9,000.00 |
| Units for $2,700 profit | 300 mugs |
The studio covers its costs at 200 mugs a month ($9,000 of sales). To earn $2,700 a month it needs to sell 300 mugs, or $13,500 of sales.