How break-even works
Every unit you sell brings in its price and costs you its variable cost. What is left over, the contribution margin, goes toward paying your fixed costs. Once enough units have chipped in to cover all the fixed costs, you have broken even; every unit after that adds its full contribution margin to profit.
So break-even units are simply fixed costs divided by contribution margin per unit. Break-even revenue is the same point in dollars: fixed costs divided by the contribution margin ratio, the share of each sales dollar that is left after variable costs.
Sorting fixed from variable costs
Fixed costs are the bills you pay whether you sell one unit or a thousand in the period: rent, salaried staff, insurance, software subscriptions, equipment leases, loan payments. Variable costs rise with each sale: the product or materials, packaging, shipping, card processing fees and sales commissions.
Some costs are mixed. A utility bill with a base charge plus usage, or staff who get more hours when it is busy, has a fixed part and a variable part. Split them as best you can; small errors here move the answer less than getting the price or the main product cost wrong.
Using the result
Compare the break-even units with what you can realistically sell. If you need 500 sales a month and have never made more than 300, the plan needs to change: a higher price, a lower variable cost, or lower fixed costs.
Price changes are powerful because they flow straight into contribution margin. In the default example, raising the price from $50 to $55 lifts the contribution margin from $20 to $25 and cuts break-even from 500 units to 400. Try a few prices in the calculator before deciding, and remember that a higher price may sell fewer units.
Adding a target profit treats that profit like one more fixed cost to cover. It tells you the sales volume you need to pay yourself or fund growth, not just to stop losing money.
The break-even formula
CM = P − VBreak-even units = F ÷ CMBreak-even revenue = F ÷ (CM ÷ P)Units for target profit = (F + T) ÷ CM- F = fixed costs for the period
- P = price per unit
- V = variable cost per unit
- CM = contribution margin per unit
- T = target profit for the same period
Example
- Monthly fixed costs are $10,000. You sell a product for $50 that costs $30 per unit in variable costs.
- Contribution margin = $50 − $30 = $20 per unit, a ratio of $20 ÷ $50 = 40%.
- Break-even units = $10,000 ÷ $20 = 500 units a month.
- Break-even revenue = $10,000 ÷ 0.40 = $25,000 (500 × $50).
- For a $5,000 monthly profit: ($10,000 + $5,000) ÷ $20 = 750 units, or $37,500 in sales.
Frequently asked questions
What is contribution margin?
It's the price of a unit minus its variable cost: the amount each sale contributes toward fixed costs and then profit. At a $50 price and $30 variable cost, it is $20 per unit, or 40% of each sales dollar.
Why does my break-even come out as a fraction?
Because fixed costs rarely divide evenly by the contribution margin. You can't sell part of a unit, so the calculator rounds up to the next whole unit — the first volume at which you are not losing money.
What if my price is lower than my variable cost?
Then each sale loses money before fixed costs are even counted, and selling more makes things worse. There is no break-even point until the price is above the variable cost per unit.
How do I calculate break-even for several products?
Use a weighted average. Work out the average price and average variable cost per unit across your expected sales mix, then enter those. The answer holds only as long as the mix stays roughly the same.
Should owner's pay be a fixed cost?
If you need a set amount to live on, yes, include it in fixed costs or enter it as the target profit. Otherwise break-even only tells you when the business stops losing money, not when it pays you.
Sources
Last reviewed for 2026. How we calculate.