Break-Even Calculator
Calculate your break-even point in units and revenue, analyze profitability scenarios, and understand your business's financial dynamics
Break-Even Calculator
Calculate break-even point in units and revenue, analyze scenarios, and determine profitability
Rent, salaries, insurance, etc.
Selling price per unit
Materials, labor, etc.
Break-Even Point (Units)
500
units to sell
Break-Even Revenue
$25,000.00
total revenue needed
Contribution Margin
$20.00
per unit
Contribution Margin Ratio
40.00%
of revenue
What is Break-Even Analysis?
Break-even analysis determines the point at which total revenue equals total costs, meaning there is no profit or loss. It's a critical financial tool for understanding how many units you need to sell or how much revenue you need to generate before your business becomes profitable.
The break-even point is where your contribution margin (revenue minus variable costs) exactly covers your fixed costs. Beyond this point, every additional sale contributes directly to profit.
Key Break-Even Formulas
Break-Even Units
BEP (units) = Fixed Costs ÷ Contribution Margin per Unit
Where: Contribution Margin = Price - Variable Cost per Unit
Break-Even Revenue
BEP ($) = Fixed Costs ÷ Contribution Margin Ratio
Where: CM Ratio = Contribution Margin ÷ Price
Target Profit Units
Units = (Fixed Costs + Target Profit) ÷ CM per Unit
Number of units to reach a specific profit goal
Margin of Safety
MOS = (Actual Sales - BEP Sales) ÷ Actual Sales
How much sales can drop before losses occur
Understanding Fixed vs Variable Costs
Fixed Costs
Costs that remain constant regardless of production volume:
- Rent and lease payments
- Salaries (non-production staff)
- Insurance premiums
- Equipment depreciation
- Property taxes
- Loan interest payments
Variable Costs
Costs that change with production volume:
- Raw materials and supplies
- Direct labor (per unit)
- Packaging costs
- Sales commissions
- Shipping and delivery
- Credit card processing fees
How to Use This Calculator
Units Break-Even Tab
Enter your fixed costs, price per unit, and variable cost per unit to find how many units you need to sell to break even. Useful for product-based businesses with clear unit costs.
Revenue Break-Even Tab
Use the variable cost ratio approach when you know what percentage of revenue goes to variable costs. Ideal for service businesses or when analyzing overall business performance.
Scenario Analysis Tab
Compare your expected sales against break-even, calculate profit or loss, and explore what-if scenarios to understand how price and cost changes affect your break-even point.
Break-Even Analysis Applications
Business Planning
- Evaluate new product viability
- Set realistic sales targets
- Price products strategically
- Plan marketing budgets
Financial Decision Making
- Assess investment opportunities
- Evaluate cost reduction initiatives
- Compare make vs buy decisions
- Analyze lease vs purchase options
Contribution Margin Explained
The contribution margin is the amount remaining from sales revenue after variable costs are deducted. This "contribution" goes toward covering fixed costs and generating profit.
| Metric | Example A | Example B |
|---|---|---|
| Selling Price | $100 | $100 |
| Variable Cost | $60 | $40 |
| Contribution Margin | $40 | $60 |
| CM Ratio | 40% | 60% |
| Fixed Costs = $30,000 | BEP: 750 units | BEP: 500 units |
Higher contribution margins mean fewer units needed to break even, making the business less risky.
Limitations of Break-Even Analysis
- Assumes constant selling price
- Assumes fixed costs remain fixed
- Doesn't account for economies of scale
- Ignores time value of money
- Based on single product or constant mix
- Doesn't consider market demand
- May not reflect real-world complexity
- Static analysis at a point in time
Frequently Asked Questions
What is a good break-even point?
A "good" break-even point depends on your industry and business model. Generally, a lower break-even point (fewer units or less revenue) is better as it means less risk. Most businesses aim to break even within 12-18 months of launching.
How can I lower my break-even point?
You can lower break-even by: increasing prices, reducing variable costs per unit, reducing fixed costs, or improving your product mix toward higher-margin items. Each 1% reduction in variable costs typically has more impact than a 1% reduction in fixed costs.
What is margin of safety?
Margin of safety measures how far sales can drop before reaching break-even. A 25% margin of safety means sales could fall 25% before the business starts losing money. Higher is better - it provides a buffer against economic downturns.
Should I include depreciation in fixed costs?
Yes, depreciation is a fixed cost for break-even analysis as it doesn't change with production volume. However, remember depreciation is non-cash, so for cash flow analysis, you may want to exclude it.