The break-even point is the number of sales at which the money coming in finally matches the money going out. Below it you are funding the business; above it, it funds you. It is the first number a plan should have, because it turns a vague “will this work?” into a countable target.
Key terms
- Fixed costs — what you pay whether you sell one unit or a thousand: rent, salaries, insurance, software.
- Variable cost per unit — what one more sale costs you: materials, packaging, shipping, card fees.
- Contribution margin — price minus variable cost. What each sale contributes towards the fixed costs, before any of it is profit.
How it works
Each sale contributes its margin towards the fixed costs. Break-even is simply how many of those contributions it takes to cover them.
Break-even point in units
units = fixed costs ÷ (price − variable cost per unit)
The contribution margin ratio is (price − variable cost) ÷ price — the share of every dollar of sales left over after making the thing.
$10,000 of fixed costs, a $25 price and $15 of variable cost gives a $10 margin, so 1,000 sales a month covers everything. The 1,001st sale is the first $10 of profit.
Units round up, and the reason matters
Divide $10,000 by a $15 margin and you get 666.67 units. You cannot sell two-thirds of a unit, and at 666 you are still $10 short — so the answer is 667. The sales figure follows the rounded count, because that is the money that actually has to come through the door rather than the fractional ideal.
When there is no break-even at all
If the price is at or below the variable cost, no volume rescues it: every extra sale widens the loss. The calculator says so plainly rather than returning an enormous number, because “sell 400,000 units” reads like a hard target when the real answer is that the price or the unit cost has to change first. Pricing at exactly cost has the same problem — each sale pays for itself and contributes nothing towards the rent.
How to use this calculator
- Add up everything you pay monthly regardless of sales, and enter it as fixed costs.
- Enter your selling price per unit, then what that unit costs you to make and deliver.
- Read the unit count and the sales figure, and compare them with what you actually sell now.
- Open the profit option to ask the other question: how many units it takes to earn a particular amount, not merely to survive.
Frequently asked questions
Should fixed costs be monthly or annual?
Either, as long as you are consistent. Monthly is more useful for a young business because it matches how rent and salaries are paid, and the answer is then units per month.
What if I sell several different products?
Use an average price and an average variable cost weighted by how much of each you sell, and treat the result as approximate. If the products have very different margins, run them separately instead — an average hides the one that is losing money.
Is my own salary a fixed cost?
If you take one, yes. Leaving the owner’s pay out is the most common way a break-even figure comes out flattering: the business appears to break even while quietly running on unpaid work.
Does breaking even mean the business is safe?
No. It means it stops losing money at that volume. There is no margin for a slow month, nothing repaying what it cost to start, and nothing set aside. The SBA suggests adding about 10% to your costs to cover what you have not thought of.
What is the contribution margin ratio for?
It tells you what share of each extra dollar of sales reaches the bottom line. At a 40% ratio, another $1,000 of sales adds $400 of profit once fixed costs are covered — which is what makes the difference between chasing revenue and chasing margin obvious.
