Break-even Calculator
Find how many units you need to sell, and how much in sales, before your business stops losing money and starts to make a profit.
Costs you pay whatever you sell: rent, salaries, software, insurance, loan payments.
Fill in any of these and the total goes into Fixed costs above.
What each extra unit costs you: materials, stock, packing, shipping.
Card fees, sales commission, marketplace or app store fees, royalties.
The price and cost above are your first product. Add others and say how they sell compared with each other.
Shares don't need to add up to 100: 3 and 1, or 75 and 25, mean three sold for every one.
Makes the profit you want an after-tax figure.
Fit-out, equipment, launch. Needs the sales you expect.
Break-even chart and profit table
| Units sold | Sales | Total costs | Profit |
|---|
How your break-even point is worked out
Break-even units = fixed costs ÷ (price − variable cost per unit).
- 1
Margin per unit
$50 − $30= $20
- 2
Margin ratio
$20 ÷ $50= 40%
- 3
Units to break even
$10,000 ÷ $20= 500 units
- 4
Break-even sales
500 × $50= $25,000
Read more: the formula, a worked example, margin of safety, target profit and sales mix
Your break-even point is the number of sales at which money in exactly matches money out: no profit, no loss. Each sale leaves a little money after paying for the unit itself (the contribution margin), and those margins have to add up to your fixed costs before you make any profit.
The formula
margin per unit = price − variable cost per unit − (price × % costs)
margin ratio = margin per unit ÷ price
break-even units = fixed costs ÷ margin per unit
break-even sales = fixed costs ÷ margin ratio
units for a profit = (fixed costs + profit before tax) ÷ margin per unit
profit before tax = profit after tax ÷ (1 − tax rate)
margin of safety = (expected sales − break-even sales) ÷ expected sales
price to break even = (fixed costs ÷ units + variable cost) ÷ (1 − % costs)
Worked example
A business with fixed costs of $10,000 a month sells a product for $50 that costs $30 to make. Each sale leaves $50 − $30 = $20, a margin ratio of $20 ÷ $50 = 40%. To cover $10,000 it must sell $10,000 ÷ $20 = 500 units a month, which is 500 × $50 = $25,000 of sales (or $10,000 ÷ 40%). That is about 16 units a day. Every unit after the 500th adds $20 of profit.
Margin of safety and the price you need
If you expect to sell 800 units a month, sales are $40,000 and profit is 800 × $20 − $10,000 = $6,000. Sales could fall by 300 units ($15,000, or 37.5%) before you start losing money: that is your margin of safety. To break even on those 800 units the price only has to be $10,000 ÷ 800 + $30 = $42.50, so you could cut it by up to 15%.
Operating leverage is total margin ÷ profit: $16,000 ÷ $6,000 = 2.67. It means a 10% rise in sales lifts profit by about 26.7%, and a 10% fall cuts it by the same.
Target profit, before and after tax
To make $5,000 a month you need ($10,000 + $5,000) ÷ $20 = 750 units. If 25% of profit goes in tax, $5,000 after tax means $5,000 ÷ 0.75 = $6,666.67 before tax, so you need ($10,000 + $6,666.67) ÷ $20 = 833.3, or 834 units. For a profit of 10% of sales, each unit has to leave $20 − 10% × $50 = $15 towards fixed costs, so you need $10,000 ÷ $15 = 667 units.
Costs that are a % of the price
Card fees, commission and marketplace fees grow with the price. A 3% card fee on a $50 sale is $1.50, so the margin falls to $18.50 and break-even rises to $10,000 ÷ $18.50 = 540.5, or 541 units.
Several products (sales mix)
With more than one product, use the average margin weighted by how many of each you sell. Product A ($50 price, $30 cost) and product B ($20 price, $8 cost) sold 3 to 1 give an average margin of 0.75 × $20 + 0.25 × $12 = $18. Break-even is $10,000 ÷ $18 = 555.6 units: about 417 of A and 139 of B, or $23,611 of sales. If the mix shifts towards the lower-margin product, break-even goes up.
Start-up costs
Break-even here covers running costs. To see when one-off start-up costs are paid back, divide them by the monthly profit after tax: $12,000 ÷ $6,000 = 2 months.
Ways to break even sooner
- Raise the price: on the example, a $5 rise cuts break-even from 500 to 400 units.
- Cut the variable cost per unit by buying in bulk, changing suppliers or reducing waste.
- Trim fixed costs, or turn some into variable costs (pay per use instead of a flat fee).
- Sell more of the products with the highest margin ratio.
Assumes the price and the cost per unit stay the same at every volume, and that everything you make is sold. Real costs often step up (a second machine, more staff) and bulk discounts change unit costs, so recheck the numbers as you grow. Tax here is a flat % of profit; real business tax rules depend on your country.
Common questions
How do you calculate the break-even point?
Divide your fixed costs by the margin each unit leaves after its own cost (price minus variable cost). With fixed costs of $10,000 a month and a product that sells for $50 and costs $30, each sale leaves $20, so you break even at $10,000 ÷ $20 = 500 units a month.
How do I work out break-even sales in money?
Divide fixed costs by the margin ratio, which is the margin per unit divided by the price. In the example, $20 ÷ $50 = 40%, so break-even sales are $10,000 ÷ 40% = $25,000. That's the same as 500 units × $50.
What is contribution margin?
It's the money each sale leaves after paying for the unit itself: the price minus the variable cost per unit, minus any costs that are a % of the price, like card fees. Together these margins have to add up to your fixed costs before you make any profit.
What is margin of safety?
It's how far sales can fall before you start losing money: (expected sales − break-even sales) ÷ expected sales. If you expect to sell 800 units against a break-even of 500, sales could fall by 300 units, or 37.5%, before you make a loss.
How many units do I need to sell for a target profit?
Add the profit you want to your fixed costs, then divide by the margin per unit. For $5,000 a month: ($10,000 + $5,000) ÷ $20 = 750 units. If 25% of profit goes in tax, $5,000 after tax needs $6,666.67 before tax, or 834 units.
How can I break even sooner?
Raise the price, cut the variable cost per unit, trim fixed costs or turn some into pay-per-use costs, and sell more of your highest-margin products. In the example, a $5 price rise cuts break-even from 500 to 400 units a month.
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