Break-Even Calculator

How to use the break-even calculator

1. Enter your Fixed costs (per period): rent, salaries, insurance, software and other costs that do not change with the number of units sold, for a month or a year.
2. Enter the Variable cost per unit (materials, packaging, shipping, payment fees…) and the Selling price per unit, excluding sales tax.
3. Optionally, enter a Target profit (optional) to see how many units you must sell to earn it, and Expected sales in units (optional) to see the profit at that volume.
4. Choose the Currency.

The results update as you type: Break-even units, Break-even revenue, Contribution margin per unit and Contribution margin ratio, plus Units for the target profit, Revenue for the target profit, Profit at expected sales and Margin of safety when you fill in the optional fields. The chart Costs and revenue by units sold draws the revenue line, the total cost line and the fixed costs: the break-even point is where the revenue line crosses the total cost line. Hover over or tab through the chart to read the values at each point. How it was calculated lists the formulas, and Copy copies the results.

What the break-even point means

The break-even point is the sales volume at which total revenue equals total costs: no profit, no loss. Below it, every period ends with a loss; above it, each extra unit adds its contribution margin to the profit.

The contribution margin is what each unit leaves after paying its own variable cost. That amount “contributes” first to covering the fixed costs, then to profit. The contribution margin ratio is the same thing as a share of the price.

Formulas

With fixed costs F, a price P and a variable cost V per unit:

• contribution margin per unit: CM = P − V
• contribution margin ratio: CM / P
• break-even units: F / CM, rounded up to a whole unit
• break-even revenue: F / (CM / P)
• units for a target profit T: (F + T) / CM
• profit for Q units: Q × CM − F
• margin of safety: (expected units − break-even units) / expected units

Example: fixed costs of $5,000 a month, a price of $30 and a variable cost of $12. The contribution margin is $18 (60% of the price). Break-even is 5,000 / 18 = 277.8, so 278 units, or $8,333.33 of revenue. To earn $4,000 of profit you need (5,000 + 4,000) / 18 = 500 units.

Limits of the model

The calculation assumes a constant price and a constant variable cost per unit, and fixed costs that stay fixed across the range. In real life, volume discounts, price promotions, overtime or a second location change those numbers. For several products, use an average price and variable cost weighted by your sales mix.