Break-even Calculator — units and revenue to cover fixed costs
Work out how many units you must sell before the business stops losing money.
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Break-even is the point where contribution covers fixed costs exactly. Below it you are funding the gap; above it, every unit adds its full contribution to profit.
The number that drives everything is contribution per unit — selling price minus variable cost. Fixed costs divided by that figure gives the units required.
The common error is classifying costs wrongly. A cost is variable only if it rises with each additional unit sold.
A worked case
Fixed costs 600,000 a year. Variable cost 400 per unit. Selling price 1,000.
Contribution per unit 600.00
Contribution margin 60.00%
Break-even in units 1,000 units
Break-even in revenue 1,000,000
Units per month 84 unitsEach sale contributes 600 toward fixed costs. After 1,000 units the fixed costs are covered and the 1,001st unit contributes 600 straight to profit.
Now test the sensitivity. Drop the price by 10% to 900: contribution falls to 500, and break-even rises to 1,200 units — a 20% increase in required volume from a 10% price cut. The lower your contribution margin, the more violently this moves.
Classifying costs correctly
Fixed costs do not change with volume in the short term: rent, salaried staff, software subscriptions, hosting, insurance.
Variable costs are incurred per unit: materials, per-transaction payment fees, shipping, commission, hourly contractor time tied to delivery.
Borderline cases matter. A salesperson on commission is variable. The same person on salary is fixed. Hosting is fixed until usage-based overage starts, at which point part of it becomes variable.
Fixed costs are only fixed within a range
At some volume you need a second server, another member of staff, a larger space. Fixed costs step up, and break-even resets at the new level. Plotting break-even at several volume assumptions is more useful than a single figure.
Margin of safety
Current sales minus break-even sales, as a percentage of current sales, tells you how far revenue can fall before you are losing money. Below about 20% the business is fragile to a bad quarter.
Frequently asked questions
What counts as a fixed cost?
Anything that does not change with the number of units sold in the short term — rent, salaried staff, software subscriptions, insurance, base hosting. If the cost is the same whether you sell one unit or a thousand, it is fixed.
Why did my break-even point jump after a small price cut?
Because the discount comes entirely out of contribution. Cutting price by 10% when your contribution margin is 60% reduces contribution by around 17%, which raises the required volume by a similar proportion. The thinner the margin, the more severe the effect.
Does break-even include my own salary?
It should, if you draw one. Treat it as a fixed cost. Leaving it out produces a break-even figure that covers the business but not the person running it, which is how founders end up subsidising their own company without noticing.
What is a healthy margin of safety?
Current sales minus break-even sales, expressed as a percentage of current sales. Below roughly 20% the business is exposed to a single bad quarter. Above 40% there is real room to absorb a downturn.
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