Break-Even Calculator

How to use the break-even calculator

Enter your fixed costs for a period (usually a month or year), the price you charge per unit and the variable cost of each unit. The calculator shows how many units you must sell to cover all costs — the break-even point — and the revenue that represents. Add a target profit to see the sales needed to reach it, and an expected sales figure to see your projected profit and margin of safety. The chart plots revenue against total cost: the point where the lines cross is break-even.

Break-even formulas

Worked example

A small candle business has fixed costs of $10,000 a month (workshop rent, salaries, website). Each candle sells for $50 and costs $30 in wax, jars, packaging and shipping. Each sale therefore contributes $20 towards fixed costs — a 40% contribution margin ratio. The break-even point is 10,000 ÷ 20 = 500 candles, or $25,000 of monthly revenue. To make a $5,000 profit, the business needs (10,000 + 5,000) ÷ 20 = 750 candles. If it expects to sell 650, profit is 650 × 20 − 10,000 = $3,000 and the margin of safety is (650 − 500) ÷ 650 = 23% — sales could fall by almost a quarter before the business makes a loss.

Fixed vs variable costs

Getting the classification right is the key to a useful break-even analysis:

Some costs are semi-variable — a phone plan with a fixed fee plus usage, for instance. Split them into their fixed and variable parts for the most accurate result.

How to lower your break-even point

• Raise prices. In the example, a $5 increase lifts the contribution margin to $25 and cuts break-even from 500 to 400 units. Test price changes with the markup calculator.
• Reduce variable costs. Cheaper shipping or bulk purchasing raises the margin on every unit.
• Trim fixed costs. Every $1,000 of fixed cost removed reduces break-even by 50 units at a $20 margin.
• Improve the sales mix. Push higher-margin products; check product margins with the margin calculator.

Break-even for a new business

Before launching a product or opening a shop, run break-even with conservative numbers: a slightly lower price than you hope for, higher variable costs and every fixed cost you can think of, including your own salary. Then compare the break-even volume with realistic demand. If you would need to sell 2,000 units a month to cover costs but the market supports 800, the plan needs rethinking before money is spent. Also estimate how many months it will take to reach break-even and make sure you have enough cash to survive until then.

Limitations

Break-even analysis assumes a constant price and variable cost per unit and that everything produced is sold. In reality, discounts, volume pricing and capacity limits change the picture. Use it as a planning tool alongside the profit calculator rather than a precise forecast.