Break-Even Calculator
Break-even is the point where the money coming in has covered everything going out, and the question it answers is not really “when am I profitable” but “is this achievable at all”. A break-even of 400 units a month is a plan; 40,000 is a different business.
Your inputs
Your result
Formula
Contribution is the number that matters
Price minus variable cost is what each sale contributes towards the fixed costs. Until those are covered, every sale reduces the loss; after they are covered, every sale is profit. This is why the same revenue can be healthy or fatal depending on the split between fixed and variable — and why the first question about any business idea should be what one sale actually contributes.
Where contribution is thin, volume has to be enormous, and small changes in cost become existential. Where contribution is fat, the business can survive a bad quarter. Neither is better in the abstract, but they demand different amounts of nerve and different amounts of capital.
Price moves break-even far more than cost does
Raising the price by 10 percent adds the full increase to contribution. Cutting the variable cost by 10 percent adds only a tenth of that cost. On the figures above, $45 to $49.50 lifts contribution from $27 to $31.50 and cuts break-even by 14 percent; taking $1.80 off the variable cost cuts it by 6 percent. Businesses in trouble reliably reach for costs first, because costs feel controllable and prices feel dangerous, and it is the less effective lever.
Margin of safety is the figure to watch
The gap between what you expect to sell and what you must sell is the room you have to be wrong. A margin of safety of 40 percent means demand can fall by that much before you lose money. Below about 20 percent, a business is one bad month or one lost client from a loss, and should be treated accordingly — not necessarily abandoned, but not expanded either.
Where the model misleads
It assumes a constant price and a constant unit cost, and reality provides neither. Volume discounts lower the unit cost as you grow; discounting to reach volume lowers the price at the same time. Fixed costs are also only fixed within a range — passing a certain volume means another member of staff or a bigger unit, and break-even jumps in a step rather than rising smoothly. Model the step before you cross it.
Your own time is a cost
Founders routinely leave their own wages out, which makes break-even look far closer than it is. If you are working full-time in the business, put a salary you could earn elsewhere into fixed costs. A business that breaks even only because nobody is paying you is not breaking even; it is being subsidised by your labour, and it is worth knowing by how much.
Frequently asked questions
How do I calculate the break-even point?
Divide fixed costs by the contribution per unit, which is the price minus the variable cost. $6,000 of fixed costs and $27 contribution needs 223 units.
What is contribution margin?
What one sale contributes towards fixed costs and profit: price minus variable cost. As a share of price it is the contribution ratio.
What counts as a fixed cost?
Anything you pay regardless of sales: rent, salaries, insurance, software, accountancy. Variable costs are the ones that only occur when you sell something.
Is it better to raise prices or cut costs?
Raising the price moves break-even much faster, because the whole increase becomes contribution while a cost cut only returns part of a smaller number.
Should I include my own salary?
Yes, if you work in the business. Leaving it out makes break-even look closer than it is and hides how much you are subsidising the business.