Break-Even Calculator

The break-even point is the exact sales volume at which your total revenue equals your total costs - you're making zero profit, but you're also losing nothing. It matters because it gives you a concrete floor: you know the absolute minimum you need to sell before your business starts making money. Every unit or dollar sold beyond that point is pure profit. Without knowing your break-even, you're essentially pricing and planning blind.

Break-even units = Fixed Costs ÷ (Price per Unit - Variable Cost per Unit). The denominator - Price minus Variable Cost - is called the contribution margin. It tells you how much each unit you sell contributes toward covering your fixed costs. Once you've covered all fixed costs, everything else is profit. Example: $5,000 in fixed costs, $12 variable cost, $30 price → contribution margin = $18 → break-even = 5000 ÷ 18 = 278 units.

Contribution margin is the amount left from each sale after subtracting variable costs - but before fixed costs are deducted. Gross profit, on the other hand, is what remains after all costs (both fixed and variable) are covered. The contribution margin ratio tells you what percentage of every dollar of revenue is available to absorb fixed costs. A 40% CM ratio means $0.40 of every $1 in revenue goes toward paying rent, salaries, and other overhead - and eventually, toward profit.

Fixed costs stay the same regardless of how much you produce or sell: rent, salaried wages, insurance, software subscriptions, loan repayments, and equipment depreciation. Variable costs scale directly with output: raw materials, hourly labor for production, packaging, shipping per order, and sales commissions per unit. In practice, some costs are semi-variable (like utilities that have a base charge plus a usage charge). For break-even purposes, split them: put the base portion in fixed, and the per-unit portion in variable.

Break-even revenue is the total dollar amount of sales you need to generate before you start making money. Formula: Break-Even Revenue = Break-Even Units × Price per Unit. Alternatively: Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio. Both give the same answer. This figure is especially useful when you sell multiple products at different prices and it's easier to think in dollars than unit counts.

A high CM ratio (say, 60-80%) means your variable costs are low relative to price, which is typical of software, consulting, or digital products. These businesses become very profitable quickly once fixed costs are covered. A low CM ratio (10-30%) is common in manufacturing, retail, and food service - you need to sell a lot of volume to cover overhead, which makes scale and efficiency critical. There's no universally 'good' CM ratio - what matters is whether your volume is sufficient to cover fixed costs at your actual ratio.

For service businesses, think of 'units' as billable hours, projects, clients, or service visits - whatever makes sense for your model. For example: if you run a cleaning company with $3,000/month in fixed costs, and each cleaning job brings in $120 at a $40 variable cost, your break-even is 3000 ÷ (120 - 40) = 37.5 jobs per month. The calculator works the same way - just define what a 'unit' means for your business.

Raising your price lowers your break-even point (fewer units needed) and increases contribution margin. Lowering your price does the opposite - it raises break-even and can dramatically squeeze profitability if your costs stay the same. This is why discounting is risky: a 10% price cut on a product with a 30% contribution margin actually requires you to sell 50% more units just to maintain the same total profit. The break-even calculator makes it easy to model these scenarios by swapping in different price points.

Absolutely - in fact, that's one of its most powerful use cases. Before you spend a dollar, plug in your projected fixed costs, estimated variable costs, and planned selling price. The calculator will tell you how many units you need to sell to not lose money. Then ask yourself: is that sales volume realistic in your market? If break-even requires selling 10,000 units per month in a niche with 500 potential buyers, that's a signal to rethink pricing, cut costs, or reconsider the business model entirely.

Break-even analysis tells you when you stop losing money. Profit margin tells you how much you keep on each dollar earned beyond that point. They complement each other: use the break-even calculator to understand your minimum sales floor, then use a profit margin calculator to understand the quality of your earnings above it. A business with a high break-even and thin margins is fragile - any dip in sales puts it in the red quickly. A business with low fixed costs and strong margins has a wide safety cushion.

Standard break-even analysis doesn't factor in taxes - it works with pre-tax figures. To find your after-tax break-even, you can inflate your fixed cost target by your estimated tax rate. For example, if you want to clear $10,000 in pre-tax profit and your tax rate is 25%, you'd need $13,333 in contribution margin above break-even. For most planning purposes, pre-tax break-even is sufficient to guide pricing and volume decisions; consult an accountant for tax-adjusted projections.

Margin of safety is the difference between your actual (or projected) sales and your break-even sales - it tells you how much your sales can fall before you start losing money. Formula: Margin of Safety = Actual Sales - Break-Even Sales. Or as a percentage: (Actual Sales - Break-Even Sales) ÷ Actual Sales × 100. A margin of safety of 30% means sales could drop by nearly a third before you hit a loss. It's a key metric for understanding business risk and resilience.