Break-Even Calculator

Your break-even point in units is fixed costs ÷ (price per unit − variable cost per unit). With $10,000 of fixed costs, a $50 price and $30 of variable cost per unit, each sale contributes $20, so you need 500 units, which is $25,000 in revenue, before you make a dollar of profit. Sale 501 is the first one that earns anything.

That is the whole core calculation, and the Break-Even Calculator does it for any three numbers. It returns three results: contribution margin per unit, break-even units and break-even revenue. It also warns you if the price is at or below the variable cost, because then no volume ever breaks even.

This guide covers the questions that come next, and the calculator does not answer them directly: the contribution margin ratio, how many units you need for a target profit, your margin of safety, how marginal cost differs from average cost, and how break-even differs from payback period. People mix those two up all the time. Every figure below is arithmetic you can check line by line.

Fixed costs vs variable costs

Break-even depends on sorting every cost into one of two buckets, and most errors happen here, before any formula is used.

• Fixed costs do not change with how many units you sell in the period. Rent, salaries, insurance, software subscriptions, loan interest, an accountant's monthly retainer. You pay them whether you sell 0 units or 10,000.
• Variable costs rise with every unit. Materials, packaging, the product itself if you buy it in, shipping to the customer, payment processing fees, marketplace commission, and any per-order ad cost.

Two rules keep the split honest. First, use the same period for everything. If fixed costs are monthly, break-even units are per month. Second, if a cost is charged as a percentage of the sale price, it is a variable cost, and it changes when the price changes. That matters later.

If you want the business to pay you, put your own pay in fixed costs. Adding a $5,000 monthly draw to $10,000 of fixed costs at a $20 contribution margin moves break-even from 500 units to 750 units. Leaving it out makes the business look healthier than it is.

How to calculate contribution margin per unit and contribution margin ratio

Contribution margin is the part of each sale that is left after variable costs. It "contributes" first to covering fixed costs and, once those are covered, to profit.

Contribution margin per unit

Contribution margin per unit = price per unit − variable cost per unit

A $50 price with $30 of variable cost gives a $20 contribution margin per unit. This is the first figure the calculator shows, labelled contribution margin per unit.

Contribution margin ratio

Contribution margin ratio = contribution margin per unit ÷ price per unit

At $20 on a $50 price the ratio is $20 ÷ $50 = 40%. For every dollar of sales, 40 cents goes toward fixed costs and profit, and 60 cents pays for the unit itself. The calculator does not display the ratio, but you can get it from its output by dividing the contribution margin by your price.

Total contribution margin

Total contribution margin = contribution margin per unit × units sold

Sell 700 units at $20 each and total contribution margin is $14,000. Subtract $10,000 of fixed costs and operating profit is $4,000. That subtraction is the entire profit model behind break-even analysis.

Price	Variable cost	Contribution margin per unit	Contribution margin ratio
$25	$10	$15	60%
$40	$30	$10	25%
$50	$30	$20	40%
$80	$20	$60	75%
$100	$60	$40	40%

Note the $50 and $100 rows. The per-unit margins are different, $20 and $40, but the ratio is the same 40%. They need different numbers of units to break even, but exactly the same revenue. The per-unit figure tells you units. The ratio tells you dollars.

Break-even point in units formula

Break-even units = fixed costs ÷ contribution margin per unit

At $10,000 of fixed costs and a $20 margin: $10,000 ÷ $20 = 500 units.

When the division does not come out even, round up. You cannot sell a third of a unit, and 333 units would leave you just short. With $1,000 of fixed costs, a $10 price and a $7 variable cost, the margin is $3 and $1,000 ÷ $3 = 333.33, so break-even is 334 units. The calculator always rounds up to the next whole unit for this reason.

To check any result, multiply back. 334 units × $3 = $1,002 of contribution margin, which covers $1,000 of fixed costs. 333 units × $3 = $999, which does not.

Break-even point in dollars formula

There are two ways to get break-even in revenue, and they can differ by a few dollars.

Break-even revenue = break-even units × price per unit Break-even revenue = fixed costs ÷ contribution margin ratio

On the standard example both give the same answer: 500 × $50 = $25,000, and $10,000 ÷ 40% = $25,000.

They split apart when break-even units are not a whole number. The calculator uses the first method, rounded-up whole units times price, because that is revenue you can actually book. The ratio method gives the exact theoretical point, as if you could sell fractions of a unit.

Fixed costs	Price	Variable cost	Break-even units	Units × price (calculator)	Fixed costs ÷ ratio
$10,000	$50	$30	500	$25,000.00	$25,000.00
$1,000	$10	$7	334	$3,340.00	$3,333.33
$10,000	$25	$10	667	$16,675.00	$16,666.67
$10,000	$80	$20	167	$13,360.00	$13,333.33

The ratio method is the one to use when you have no single unit price: a service business, a shop with hundreds of products, or a whole company. There you estimate the average contribution margin ratio from your accounts, total sales minus total variable costs divided by total sales, and divide fixed costs by it.

Break-even units table at $10,000 fixed costs

Every cell below is $10,000 ÷ (price − variable cost), rounded up to a whole unit. "Never" means the price does not exceed the variable cost, so each sale loses money or earns nothing.

Price per unit	Variable cost $10	Variable cost $15	Variable cost $20	Variable cost $30	Variable cost $40
$30	500	667	1,000	Never	Never
$40	334	400	500	1,000	Never
$50	250	286	334	500	1,000
$60	200	223	250	334	500
$80	143	154	167	200	250
$100	112	118	125	143	167

Read down the $30 variable cost column to see why thin margins are dangerous. At a $40 price you need 1,000 units. Add $10 to the price and you need 500. Add another $10 and you need 334. Each $10 matters less than the last, because the first $10 doubled the margin, from $10 to $20, while the second only raised it by half, from $20 to $30. If your product sits in the top-right, low-margin corner of this table, small price moves change your required volume dramatically. In the bottom-left, high-margin corner, they barely matter.

To get break-even revenue for any cell, multiply the units by the price in that row. For fixed costs other than $10,000, scale in proportion: at $5,000 of fixed costs the unrounded figures halve, and at $20,000 they double, then round up again.

How many units to sell to reach a target profit

Break-even is just the target-profit formula with a target of zero. To aim for a profit, add it to fixed costs.

Units for target profit = (fixed costs + target profit) ÷ contribution margin per unit Revenue for target profit = (fixed costs + target profit) ÷ contribution margin ratio

At $10,000 of fixed costs and a $20 margin on a $50 price:

Target profit per period	Units needed	Revenue needed
$0 (break-even)	500	$25,000
$5,000	750	$37,500
$10,000	1,000	$50,000
$20,000	1,500	$75,000

A useful shortcut with the calculator: type fixed costs plus your target profit into the fixed costs field. The break-even units it returns are then the units you need for that profit. It is the same formula, so the answer is exact, but remember that the label still says break-even.

Target profit as a percentage of sales

If the goal is a margin rather than a dollar amount, say 10% of sales as profit, subtract that share of the price from the contribution margin first:

Units = fixed costs ÷ (contribution margin per unit − target % × price)

At a 10% target on a $50 price, $5 of every sale is reserved for profit, leaving $15 per unit to cover fixed costs. $10,000 ÷ $15 = 666.67, so 667 units. Check: 667 × $50 = $33,350 of revenue, and 667 × $20 − $10,000 = $3,340 of profit, which is 10.0% of revenue.

Target profit after tax

These formulas give profit before income tax. If your target is what you keep after tax, gross it up first: pre-tax target = after-tax target ÷ (1 − your tax rate), using your own effective rate, then use the pre-tax figure above. Tax rates depend on your business structure and where you are, so confirm yours with an accountant or the official tax authority.

Margin of safety in units, revenue and percent

Margin of safety is how far sales can fall before you hit break-even. It measures cushion, and it is one of the most useful numbers in small business planning and one of the least calculated. The calculator does not compute it, but it gives you the break-even figure you need.

Margin of safety in units = actual or expected units − break-even units Margin of safety in revenue = actual or expected revenue − break-even revenue Margin of safety percentage = margin of safety ÷ actual or expected sales

The percentage divides by your actual or expected sales, not by break-even. It answers "by what share can my sales drop before I stop making money?"

Take the standard example selling 700 units a month, against a break-even of 500:

• Margin of safety in units: 700 − 500 = 200 units
• Margin of safety in revenue: $35,000 − $25,000 = $10,000
• Margin of safety percentage: 200 ÷ 700 = 28.57%

Sales can fall by about 28.6% before the month turns into a loss.

Units sold per month	Margin of safety (units)	Margin of safety (revenue)	Margin of safety %	Operating profit
550	50	$2,500	9.09%	$1,000
700	200	$10,000	28.57%	$4,000
900	400	$20,000	44.44%	$8,000
1,200	700	$35,000	58.33%	$14,000

What margin of safety tells you about profit

Two relationships fall straight out of the arithmetic and are worth knowing.

Profit equals margin of safety times contribution margin. Every unit above break-even is pure contribution: 200 units × $20 = $4,000, the same profit as 700 × $20 − $10,000. Likewise, margin of safety percentage × contribution margin ratio = operating profit margin: 28.57% × 40% = 11.43%, and $4,000 ÷ $35,000 = 11.43%.

A small margin of safety means profit swings hard. At 700 units, 1 ÷ 28.57% = 3.5. That multiplier, called the degree of operating leverage, says a 10% change in sales moves profit by about 35%. Check it: a 10% drop to 630 units gives 630 × $20 − $10,000 = $2,600, down 35% from $4,000. At 550 units, with a margin of safety of 9.09%, the multiplier is 11, and a bad month wipes out profit entirely. A business running close to break-even is not a slightly less profitable version of a safe one. It is a much more fragile one.

Marginal cost formula, and why marginal cost differs from average cost

Marginal cost is the extra cost of producing one more unit, or more practically, the change in total cost over a change in volume.

Marginal cost = change in total cost ÷ change in quantity

In the simple model a break-even calculation assumes, fixed costs do not move and every unit has the same variable cost. So marginal cost is simply the variable cost per unit, $30 in the standard example. Going from 500 to 501 units adds $30 of cost and nothing else.

Average cost per unit

Average cost per unit = (fixed costs + variable cost per unit × units) ÷ units

Average cost spreads fixed costs over every unit, so it falls as volume rises, even though marginal cost stays flat:

Units	Total cost	Average cost per unit	Marginal cost per unit
100	$13,000	$130.00	$30
250	$17,500	$70.00	$30
500	$25,000	$50.00	$30
1,000	$40,000	$40.00	$30
2,000	$70,000	$35.00	$30

Look at the 500-unit row. Average cost is exactly $50, the selling price. That is not a coincidence. The break-even point is the volume where average cost per unit falls to the price. Below it, each unit costs more on average than it sells for. Above it, less.

Why the difference matters for pricing decisions

Confusing the two leads to two opposite mistakes.

Pricing from average cost at a volume you have not reached. If you plan on 2,000 units, an average cost of $35 makes a $40 price look profitable. If you actually sell 250, the average cost is $70 and every sale is underwater on a fully loaded basis.

Rejecting profitable extra orders. Suppose you sell 700 units a month at $50 and have spare capacity. A buyer offers to take 200 more at $38. Average cost at 700 units is $31,000 ÷ 700 = $44.29, so $38 looks like a loss. But the extra units cost only their marginal $30 each, because rent and salaries are already paid. The order adds 200 × ($38 − $30) = $1,600 of profit. That holds only if the order does not displace full-price sales, does not need extra capacity, and does not teach your regular customers to expect $38.

When marginal cost stops being flat

Real marginal cost jumps at capacity. Say one production shift tops out at 1,200 units, and a second shift adds $6,000 a month of fixed cost. Total cost at 1,200 units is $10,000 + 1,200 × $30 = $46,000. At 1,300 units it is $16,000 + 1,300 × $30 = $55,000. The extra 100 units cost $9,000, a marginal cost of $90 each over that range, even though the variable cost is still $30. A break-even formula with a single fixed-cost figure cannot see this, which is one reason to rerun it whenever volume crosses a capacity step.

Payback period formula

Payback period answers a different question: how long until the cash from an investment returns the money you put in?

Payback period = initial investment ÷ net cash inflow per period

If a $12,000 machine increases your monthly contribution by $1,500, payback is $12,000 ÷ $1,500 = 8 months.

When the cash inflows are uneven, add them up period by period until the running total reaches the investment, then take the fraction of the final period:

Year	Cash inflow	Cumulative inflow	Still to recover from $10,000
1	$3,000	$3,000	$7,000
2	$4,000	$7,000	$3,000
3	$5,000	$12,000	Recovered

After two years $3,000 is still outstanding, and year three brings in $5,000, so payback is 2 + $3,000 ÷ $5,000 = 2.6 years, or about 2 years and 7 months.

Payback has two well-known blind spots. It ignores the time value of money, so a dollar in year three counts the same as a dollar today. A discounted payback period fixes that by discounting each period's cash flow at your required rate of return before adding them up. It also ignores everything after payback, so a project that pays back in 2 years and then stops looks better than one that pays back in 3 and runs for 10. For the full return over an investment's life, the Investment ROI Calculator gives total and annualized return.

Payback period vs break-even point

These two get confused constantly, often because "when will my business break even?" sounds like a question about time. The break-even point is not a date.

	Break-even point	Payback period
Question it answers	How many sales per period cover that period's costs?	How long until cumulative cash returns an upfront investment?
Unit of the answer	Units or revenue per period	Months or years
Main inputs	Fixed costs, price, variable cost	Upfront investment, cash inflow per period
Measures	Operating profit in a period	Recovery of a one-off outlay
Tells you nothing about	How long startup costs take to recover	Whether each month is profitable or how many units to sell

They work together. Suppose you spend $20,000 upfront on equipment, stock and launch costs, then run at $10,000 a month of fixed costs, selling at $50 with a $30 variable cost.

• Break-even point: 500 units a month. Below that, every month loses money and payback never starts.
• Monthly profit at 700 units: 200 units above break-even × $20 = $4,000.
• Payback period: $20,000 ÷ $4,000 = 5 months.

Now sell 550 units a month instead. You are still above break-even, but profit is only 50 × $20 = $1,000 a month, and payback stretches to $20,000 ÷ $1,000 = 20 months. A 21% drop in sales, from 700 to 550 units, quadruples the payback period. That is margin of safety and operating leverage showing up again in a different form.

One accounting point: do not put the whole $20,000 into monthly fixed costs, or break-even for the first month will be absurd. Keep one-off startup costs out of the break-even calculation and recover them through payback. If you want a monthly figure, spread the outlay over its useful life, which is what depreciation does, or include the monthly loan repayment if you financed it. This example also treats profit as cash. In a real business, stock bought before it sells and customers who pay late make cash arrive later than profit.

Break-even for online sellers: fees, shipping and ads are variable costs

For anyone selling online, most platform costs are variable and most are charged as a percentage of the sale price. That changes the arithmetic in a way a flat variable-cost figure hides.

If a fee is a percentage of the price, contribution margin is:

Contribution margin = price × (1 − fee percentage) − other variable costs

Using 10% as a round figure chosen only to keep the arithmetic easy, not as any platform's actual rate: a $50 item with $30 of product and shipping cost and a 10% fee has a $5 fee, so the contribution margin is $15, not $20, and break-even at $10,000 of fixed costs rises from 500 to 667 units. Raise the price to $55 and the fee rises too, to $5.50. The margin becomes $19.50 and break-even is 513 units, not the 400 you would get if the fee stayed fixed.

Platform rates change and differ by category, plan and payment method, so get your real per-order fee total from a calculator built for your platform, then put it into the variable cost field:

• Shopify Fee Calculator, Etsy Fee Calculator and eBay Fee Calculator for the fees on one order
• Marketplace Fee Comparison Calculator to see the same order across platforms, and which one gives you the lowest break-even
• Landed Cost Calculator for the true per-unit cost of imported stock once freight and duty are included

Advertising belongs in variable cost when you think of it per order, as the ad spend it takes to win one sale. It belongs in fixed cost when it is a set monthly budget that does not scale with orders. Pick one treatment and stick with it. The Breakeven ROAS Calculator works out the return on ad spend at which ads just pay for themselves.

Discounts hit break-even harder than they look. Cut the $50 price by 10% to $45 and the margin drops from $20 to $15, a 25% cut in margin. Break-even rises from 500 to 667 units, so you need about a third more sales just to stand still. The Discount Margin Calculator shows what a sale price does to profit on each order.

Contribution margin vs gross margin vs profit margin

These three sound alike and are calculated differently.

• Contribution margin subtracts all variable costs, including selling costs such as payment fees and shipping, and no fixed costs. It is the figure break-even analysis needs.
• Gross margin subtracts cost of goods sold. Under standard financial accounting, cost of goods sold can include some fixed production overhead and usually excludes selling costs such as marketplace fees. So gross margin is often not the same number as contribution margin, and using it in the break-even formula gives the wrong answer.
• Net profit margin subtracts every cost, fixed and variable, and is what is left at the bottom.

Margin and markup are also different. On a $50 price and $30 cost, the $20 difference is a 40% margin, $20 ÷ $50, but a 66.67% markup, $20 ÷ $30. The Profit Margin Calculator converts between them and works out profit from cost and price.

What break-even analysis ignores

The break-even formula is a straight-line model. It assumes a fixed price, a constant variable cost per unit, fixed costs that really are fixed, one product, and that everything you make, you sell. Each assumption breaks somewhere, and each one is worth checking before you trust the answer.

Capacity limits

The formula will happily tell you to sell 5,000 units a month even if your workshop can make 800. If break-even is above what you can physically produce, ship or deliver at your current fixed costs, you do not break even, however strong demand is. Compare break-even units to your real capacity, not just to demand.

Mixed products and sales mix

The calculator takes one price and one variable cost. Most businesses sell several products with different margins, so break-even depends on the sales mix.

Suppose product A sells for $50 with a $30 variable cost, a $20 margin, and product B sells for $20 with a $14 variable cost, a $6 margin. You typically sell 1 A for every 3 B.

• Treat one A plus three B as a bundle. Its contribution margin is $20 + 3 × $6 = $38, and its revenue is $50 + $60 = $110.
• Break-even bundles: $10,000 ÷ $38 = 263.16, rounded up to 264 bundles, which is 264 of A and 792 of B. Check: 264 × $20 + 792 × $6 = $10,032.

To use the single-product calculator, enter weighted averages per unit sold. Four units in the bundle means an average price of $110 ÷ 4 = $27.50 and an average variable cost of $72 ÷ 4 = $18.00. The calculator then shows a $9.50 margin and 1,053 units, the same answer before rounding to whole bundles.

The catch is that the answer holds only while the mix holds. If customers shift to 1 A for every 1 B, the bundle margin is $26, and break-even becomes 385 bundles, 770 units in total. A mix drifting toward the low-margin product raises break-even even when total units sold are unchanged.

Semi-fixed and step costs

Many costs are neither purely fixed nor purely variable. Part-time staff scheduled around volume, utilities with a base charge plus usage, software that moves up a pricing tier as orders grow, a second warehouse you need past a certain size. These are semi-variable if they have a fixed base plus a per-unit part, and step costs if they stay flat and then jump.

A rough way to split a mixed cost is the high-low method, using your highest- and lowest-volume months:

Variable part per unit = (cost in high month − cost in low month) ÷ (units in high month − units in low month)

If overhead was $6,200 in a 400-unit month and $7,700 in a 900-unit month, the variable part is $1,500 ÷ 500 = $3 per unit, and the fixed part is $6,200 − 400 × $3 = $5,000. Put the $5,000 in fixed costs and add $3 to variable cost. It is an approximation built on two data points, so check it against a few more months. For step costs, work out break-even separately for each step.

Price and variable cost that change with volume

Selling more usually means offering volume discounts, running promotions or reaching less eager buyers, so the average price falls. Buying more may earn supplier price breaks, so variable cost falls too. The formula assumes both stay put. If you expect either to move, rerun the calculation at the price and cost you expect at the break-even volume, not at today's figures.

Cash timing, non-cash costs and tax

Break-even is an accounting-profit measure for a period. It does not show that you pay for stock weeks before selling it. It counts depreciation as a cost even though no cash leaves that month, and it does not count loan principal repayments, which do take cash. A cash break-even adjusts for this: remove non-cash costs from fixed costs and add cash commitments. If $1,000 of the $10,000 is depreciation, cash break-even is $9,000 ÷ $20 = 450 units. And the whole model is pre-tax, as covered under target profit above.

How to lower your break-even point

There are only three levers: price, variable cost and fixed cost. They are not equally powerful, and which one matters most depends on how thin your margin already is.

Change (from $10,000 fixed, $50 price, $30 variable)	New margin	Break-even units	Change in break-even
No change	$20.00	500	None
Price up 10% to $55	$25.00	400	20% fewer units
Variable cost down 10% to $27	$23.00	435	13% fewer units
Fixed costs down 10% to $9,000	$20.00	450	10% fewer units

Now the same three changes on a thin-margin product, a $50 price with a $45 variable cost:

Change (from $10,000 fixed, $50 price, $45 variable)	New margin	Break-even units	Change in break-even
No change	$5.00	2,000	None
Price up 10% to $55	$10.00	1,000	50% fewer units
Variable cost down 10% to $40.50	$9.50	1,053	47% fewer units
Fixed costs down 10% to $9,000	$5.00	1,800	10% fewer units

A 10% cut in fixed costs always cuts break-even by about 10%. A 10% change in price or variable cost can halve it when margins are thin. If you are selling at a small margin, cutting rent is the slow route. Price and unit cost are where the leverage is.

In practice that means:

• Raise the price where the market allows, even slightly, and test it before assuming you cannot.
• Cut variable costs: renegotiate supplier prices, change packaging, compare platform and payment fees, and reduce shipping cost per order.
• Reduce fixed costs you are paying for but not using, such as idle subscriptions, excess space or tools that overlap.
• Shift the mix toward higher-margin products through placement, bundles and where you spend your marketing budget.

When you can't break even

If your variable cost per unit is at or above your price, the contribution margin is zero or negative. Every sale adds nothing or loses money, and no volume fixes it. Selling more makes the loss bigger. The only solutions are to raise the price or to cut the variable cost, and the calculator shows a warning instead of a unit count in this case.

This happens more often than people expect with percentage fees and free shipping. An item that looks like it clears its product cost can fall below zero once commission, payment processing and the shipping you absorbed are all counted. Build the variable cost from a real order, not from the supplier invoice alone.

Common break-even mistakes

Leaving fees and shipping out of variable cost. Break-even calculated on product cost alone can be hundreds of units too low.

Using gross margin instead of contribution margin. Gross margin may include fixed overhead and exclude selling costs. Break-even needs every variable cost and nothing fixed.

Mixing periods. Annual rent divided by a monthly margin produces a number that means nothing. Keep fixed costs and sales in the same period.

Rounding break-even units down. 333.33 units means 334. At 333 you are still slightly short.

Treating break-even as a date. Break-even is a volume. How long it takes to recover startup money is payback period, a separate calculation.

Loading one-off startup costs into monthly fixed costs. That inflates break-even for a single month and hides what the business needs to sell in normal operation.

Leaving out your own pay. If the business must support you, your pay is a fixed cost.

Assuming the mix holds. A multi-product break-even is only valid at the sales mix you assumed.

Stopping at break-even. Break-even is the floor, not the plan. Work out the units for the profit you actually want and the margin of safety you would have at realistic sales.

The bottom line

Break-even units are fixed costs ÷ (price − variable cost), rounded up. Break-even revenue is those units times the price, or fixed costs divided by the contribution margin ratio. From there, add a target profit to fixed costs to see the volume you need to earn it. Compare expected sales to break-even to get your margin of safety. And keep payback period, the time to recover an upfront investment, separate from both. Run your numbers through the Break-Even Calculator with every variable cost included, and if the required volume is beyond what you can sell or produce, change the price or the costs before you commit.

Related calculators

• Profit Margin Calculator: profit, margin and markup from cost and price
• Discount Margin Calculator: what a sale price really does to your profit
• Marketplace Fee Comparison Calculator: the same order compared across selling platforms
• Landed Cost Calculator: true per-unit cost after freight and duty
• Breakeven ROAS Calculator: the return on ad spend your ads need just to break even
• Investment ROI Calculator: total and annualized return on an investment