Break-Even Calculator
Calculate the units and revenue needed to cover fixed costs at a given price and variable cost, or to reach a target profit.
Updated Formula covered by automated tests
The break-even point is the sales volume at which a product or business covers all of its costs and starts to earn a profit. Enter your fixed costs for a period, the variable cost of making or delivering one unit, and the price you charge, and this tool returns how many units you must sell and how much revenue that represents.
Small-business owners use it to test a price before launching, to see how many extra customers a new hire or a bigger lease would require, and to set a monthly sales goal. Add a target profit and the same calculation tells you the volume needed to pay yourself a given amount, not just to avoid a loss.
The formula
- F
- Fixed costs for the period: rent, salaries, insurance, software subscriptions and other costs that do not change with volume
- V
- Variable cost per unit: materials, packaging, payment processing, shipping and anything else that scales with each sale
- P
- Selling price per unit, net of discounts
- T
- Optional profit you want to earn on top of covering fixed costs in the same period
- (P − V) ÷ P
- Contribution margin ratio: the share of each sales dollar left to cover fixed costs
Each unit sold brings in its price and costs its variable cost, so it contributes P − V toward fixed costs. Once enough units have been sold for those contributions to add up to F, every further unit is profit. Dividing F by the contribution per unit gives that number of units, rounded up because a fraction of a sale does not happen.
The revenue version divides by the contribution margin ratio instead, which is handy when a business sells many items at different prices but has a fairly stable average margin. If the price is at or below the variable cost, the contribution is zero or negative and no volume can ever break even; the calculator reports that instead of a number.
Worked example
Elena makes hand-poured candles. Her studio rent, insurance and website cost $4,500 a month; wax, wick, jar and shipping supplies come to $6 per candle; and she sells each candle for $24.
- 1 Contribution per candle: $24 − $6 = $18.
- 2 Break-even volume: $4,500 ÷ $18 = 250 candles a month.
- 3 Contribution margin ratio: $18 ÷ $24 = 0.75, so break-even revenue is $4,500 ÷ 0.75 = $6,000.
- 4 To pay herself $1,800 a month on top: ($4,500 + $1,800) ÷ $18 = 350 candles, or $8,400 in sales.
Result: Elena breaks even at 250 candles ($6,000) a month and needs 350 candles ($8,400) to earn $1,800 of profit.
Before you rely on the result
- Assumes the price and variable cost per unit stay constant at every volume; bulk discounts, overtime or price cuts to win volume change both.
- Fixed costs are only fixed within a range: beyond a certain volume you may need more space or staff, which creates a new, higher break-even point.
- Taxes, financing costs and timing of cash are outside the model. For a business plan or loan application, have the figures reviewed by an accountant; the SBA and SCORE offer free mentoring.
Frequently asked questions
Is my own salary a fixed cost?
If you pay yourself a set wage through payroll, yes, include it in fixed costs. If you take whatever is left over, leave it out and enter the amount you want to earn as the target profit instead. Either way you get the volume that covers the business and your pay.
How do I break even with several products at different prices?
Use a weighted average. Work out the average price and average variable cost across your expected sales mix, or use the revenue version: divide fixed costs by your overall contribution margin ratio. The answer holds only while the mix of products stays roughly the same.
What happens to the break-even point if I raise my price?
It falls, often sharply, because the whole price increase goes to the contribution margin. In the candle example, raising the price from $24 to $27 lifts the margin from $18 to $21 and cuts break-even volume from 250 to 215 candles a month, as long as customers keep buying at the higher price.
Is break-even the same as being cash-flow positive?
No. Break-even is an accounting measure for one period. You can be above it and still run short of cash if customers pay late, you buy inventory in advance, or you are repaying a loan, since loan principal is not an expense in this formula.