Break-Even Calculator
Understanding Break-Even
Break-Even Formula
Break-Even Units = Fixed Costs / (Price - Variable Cost)
Contribution Margin
The amount each unit sale contributes toward covering fixed costs and generating profit.
Fixed vs Variable Costs
Fixed costs stay the same regardless of sales. Variable costs change with each unit produced.
Key Terms
Costs that don't change with volume (rent, salaries)
Costs that change per unit (materials, labor)
Selling price minus variable cost per unit
Related Calculators
Understanding Break-Even Analysis
What is Break-Even?
The break-even point is where total revenue equals total costs—the point at which a business neither makes a profit nor incurs a loss. Understanding your break-even point helps with pricing decisions, cost management, and business planning.
Break-Even Formula
Fixed vs. Variable Costs
Fixed Costs Examples
- Rent or mortgage payments
- Salaries (not tied to production)
- Insurance premiums
- Equipment depreciation
- Loan payments
- Software subscriptions
Variable Costs Examples
- Raw materials
- Direct labor (per unit)
- Packaging
- Shipping costs
- Sales commissions
- Credit card fees
Contribution Margin
The contribution margin is the amount each sale contributes toward covering fixed costs and generating profit. It's a crucial metric for understanding product profitability.
Example Calculation
Scenario:
- Fixed Costs: $50,000/year
- Selling Price: $75/unit
- Variable Cost: $25/unit
Calculation:
Contribution Margin = $75 - $25 = $50/unit
Break-Even = $50,000 ÷ $50 = 1,000 units
Break-Even Revenue = 1,000 × $75 = $75,000
Uses of Break-Even Analysis
Pricing Decisions
Understand the minimum price needed to cover costs, and how price changes affect the volume needed to break even.
Cost Control
See how reducing fixed or variable costs lowers your break-even point and increases profitability.
New Product Analysis
Evaluate whether a new product can sell enough units to justify the investment in development and production.
Risk Assessment
Compare break-even volume to realistic sales projections to assess business risk and plan accordingly.
Limitations
- Assumes all costs can be cleanly classified as fixed or variable
- Assumes price and costs remain constant at all volume levels
- Doesn't account for time value of money
- Assumes all units produced are sold
- Works best for single-product analysis (multi-product is more complex)
Frequently Asked Questions
What is a break-even point in business?
The break-even point is where your total revenue equals total costs - you're not making a profit or a loss. It tells you the minimum number of units you need to sell (or revenue you need to generate) to cover all your fixed and variable costs. Every sale beyond this point contributes to profit.
How do I calculate my break-even point?
Use the formula: Break-Even Units = Fixed Costs / (Selling Price - Variable Cost per Unit). The difference between selling price and variable cost is your 'contribution margin' - what each sale contributes toward covering fixed costs. For example, with $50,000 in fixed costs, a $75 selling price, and $25 variable cost, you'd need to sell 1,000 units to break even.
What is the difference between fixed and variable costs?
Fixed costs remain constant regardless of production volume - rent, salaries, insurance, and loan payments are examples. Variable costs change with each unit produced - materials, direct labor, packaging, and shipping costs. Some costs are semi-variable (like utilities), which have both fixed and variable components.
How can I lower my break-even point?
You can lower your break-even point by: reducing fixed costs (negotiating rent, cutting subscriptions), lowering variable costs per unit (finding cheaper suppliers, improving efficiency), or increasing your selling price (if the market allows). Each approach affects profitability differently, so model different scenarios to find the best strategy for your business.