How to Calculate a Break-Even Point in Units and Revenue
The break-even point is the amount you have to sell before a product, a shop or a side project stops losing money. Below it you are making a loss, above it every extra sale adds profit. It is one of the quickest ways to test whether a plan is realistic before you spend anything.
The calculation needs only three inputs: your fixed costs, your selling price and your variable cost per unit. This guide works through all three, shows how to add a profit target, and explains where the simple version stops being reliable.
Sort your costs first
Everything depends on splitting costs into two groups.
- Fixed costs stay the same however much you sell in the period: rent, insurance, software subscriptions, salaried wages, loan repayments.
- Variable costs rise with each unit sold: materials, packaging, shipping, sales commission, and payment fees that are charged per sale.
Some costs sit in between. A phone plan with a base charge plus usage, or a worker paid for overtime, is partly fixed and partly variable. For a first estimate, put the base amount in fixed costs and the per-unit part in variable costs.
The break-even calculation
Each unit you sell contributes something toward the fixed costs once its own variable cost is paid. That amount is the contribution margin per unit.
contribution per unit = price − variable cost per unit
break-even units = fixed costs ÷ contribution per unitRound the result up to a whole unit.
Worked example: a small online shop has fixed costs of 4,800 a month. It sells a product for 24, and each sale costs 9 in materials, packaging and payment fees. The contribution is 24 − 9 = 15, so break-even is 4,800 ÷ 15 = 320 units a month.
To express that as revenue, multiply by the price: 320 × 24 = 7,680. You can reach the same figure without knowing the unit count by dividing fixed costs by the contribution ratio (contribution ÷ price). Here the ratio is 15 ÷ 24 = 62.5%, and 4,800 ÷ 0.625 = 7,680. The revenue method is handy for businesses that sell many products at different prices.
Adding a profit target
Break-even is the minimum. Most people also want to know what it takes to earn a specific amount. Treat the target as an extra fixed cost you must cover:
units for target profit = (fixed costs + target profit) ÷ contribution per unit
To earn 3,000 a month in the same shop, you need (4,800 + 3,000) ÷ 15 = 520 units, which is 12,480 in sales. The margin of safety compares your expected sales to break-even. If you forecast 400 units, the margin of safety is (400 − 320) ÷ 400 = 20%: sales could fall by a fifth before you start losing money, and profit at 400 units is 400 × 15 − 4,800 = 1,200.
How the price changes the answer
A small change in price has an outsized effect on break-even because it changes the contribution on every unit. Using the same shop, with 4,800 of fixed costs and 9 of variable cost:
| Price | Contribution | Break-even units | Break-even revenue |
|---|---|---|---|
| 20 | 11 | 437 | 8,740 |
| 22 | 13 | 370 | 8,140 |
| 24 | 15 | 320 | 7,680 |
| 26 | 17 | 283 | 7,358 |
Dropping the price from 24 to 20 raises the units needed by more than a third (from 320 to 437), but the real test is whether customers would buy that many more at the lower price. Break-even tells you what you need, not what demand will deliver.
Where the simple model breaks down
- It assumes a single price and a constant variable cost. Bulk discounts, sales and changing supplier prices all move the real answer.
- Fixed costs are only fixed within a range. If sales growth forces you to rent more space or hire another person, the fixed costs step up.
- It ignores timing. You may need cash for stock before the sales arrive, so you can be profitable on paper and still run short of money.
- For several products, use a blended average price and variable cost, weighted by how often each one sells.
You can test your own numbers with the break-even calculator, and check that your price leaves a healthy cut after costs with the margin calculator.
This is general education about a simple formula, not financial or business advice. Real costs vary, so review your own figures before making decisions.
- Break-Even Calculator: Enter your fixed costs, the cost of producing one more unit and the price you charge. The calculator tells you how many units and how much revenue you need before you stop losing money.
- Margin Calculator: Fill in your cost and one of revenue, profit or margin to see the other figures instantly. The guide explains gross margin, net margin and how margin differs from markup.
This article is general information, not professional advice. See our Disclaimer and Editorial Policy.
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