What is the break-even formula?

Break-even units equal total fixed costs divided by the contribution margin per unit. Contribution margin per unit equals selling price minus variable cost per unit. Break-even revenue equals break-even units multiplied by selling price.

What counts as a fixed cost versus a variable cost?

Fixed costs stay constant regardless of how many units you produce or sell: rent, salaries, insurance, software subscriptions, and loan payments are typical examples. Variable costs change in proportion to output: raw materials, packaging, per-unit shipping, and sales commissions are common variable costs. Some costs are mixed and have both a fixed base and a variable component, such as a utility bill with a base charge plus usage fees.

What is contribution margin and why does it matter?

Contribution margin is the selling price minus variable cost per unit. It is the amount each sale contributes toward covering fixed costs and eventually generating profit. A higher contribution margin means fewer units are needed to reach break-even. Products or services with low contribution margins require high sales volumes to be profitable.

How does break-even analysis change if I have multiple products?

For multiple products, calculate a weighted average contribution margin based on the expected sales mix of each product, then divide total fixed costs by the weighted average. If 60 percent of sales come from Product A with a $20 contribution margin and 40 percent from Product B with a $10 contribution margin, the weighted average is $16 and you divide fixed costs by $16 to find break-even units.

What is the margin of safety?

Margin of safety is the difference between your actual or projected sales volume and the break-even point. It tells you how much sales can drop before you incur a loss. A margin of safety of 20 percent means sales could fall by 20 percent before the business breaks even. A low margin of safety signals operational risk, particularly in businesses with high fixed cost structures.

How does a price change affect break-even?

A price increase raises contribution margin per unit and lowers break-even units. A price decrease does the opposite. Because contribution margin is the denominator of the break-even formula, pricing decisions have a nonlinear effect: a 10 percent price cut on a product with a 30 percent contribution margin reduces contribution margin by roughly one-third, which requires a much larger increase in unit sales to compensate.

Can I use break-even analysis for a service business?

Yes. For service businesses, use revenue break-even rather than unit break-even. Your variable cost is the direct cost of delivering the service per dollar of revenue billed, and your selling price is the billing rate. Break-even revenue equals fixed costs divided by contribution margin as a percentage of revenue. Hourly consulting businesses, for example, can set their minimum billable hours target this way.

Break-even calculator (2026)

Enter your fixed costs, variable cost per unit, and selling price to find the exact unit volume and revenue needed to cover all costs. Instant results with contribution margin and margin of safety.

100% client-side. Your inputs stay in this browser.

Enter your fixed costs, selling price, and variable cost per unit to find the volume where total revenue equals total cost.

Fixed costs (monthly)Rent, salaries, insurance — costs that don't change with volume.Selling price per unitWhat you charge per unit sold.Variable cost per unitMaterials, labor, shipping — costs that scale with each unit.Current volume (optional)Units you're currently selling (to calculate margin of safety).

Break-even units

500

Units to cover all costs

Break-even revenue

$25,000.00

Total revenue at break-even

Contribution margin

$20.00

40% per unit

Understanding the numbers

Break-even point: You need to sell 500 units to cover your fixed costs of $10,000.00. At this volume, total revenue ($25,000.00) equals total cost.
Contribution margin: Each unit contributes $20.00 toward covering fixed costs. This is your selling price ($50.00) minus variable cost per unit ($30.00).

How this tool works

The break-even calculator divides your total fixed costs by the difference between your selling price per unit and your variable cost per unit. That difference is called the contribution margin: the slice of every sale that goes toward covering fixed costs before profit can begin. Once the cumulative contribution margin equals total fixed costs, you have reached break-even. Every unit sold beyond that point contributes directly to profit. The calculator also computes break-even revenue, which is often more useful than units for service businesses or situations where average order value varies. Revenue break-even equals units break-even multiplied by your selling price.

When to run a break-even analysis

Run a break-even analysis before launching a product, setting a price, signing a lease, or hiring a full-time employee. Any decision that adds fixed costs to your business changes your break-even point and should be evaluated before you commit. It is equally useful when you are considering a price cut: enter the lower price and see how many extra units you would need to sell to maintain the same profit. That math often reveals that discounting is harder to recover from than it looks. Break-even analysis is also the starting point for sensitivity modeling. Change one variable at a time and watch how the break-even point moves. A 10 percent drop in variable cost often moves the break-even point more than a 10 percent price increase, which is why supply chain work and procurement negotiations can outperform pure sales pushes on margin.

How to interpret your results

The break-even unit count tells you the minimum sales volume required to avoid a loss. If that number is above your realistic monthly or annual sales capacity, the current cost or price structure will not work without a change to one of the three inputs. The margin of safety, shown below the main result, measures how far your current or projected sales volume sits above the break-even point. A margin of safety below 15 percent is a warning sign: one slow quarter could push you into a loss. A high margin of safety gives you room to absorb cost increases or price pressure without changing the fundamental viability of the business. Contribution margin percentage is the share of each revenue dollar that covers fixed costs or becomes profit. A contribution margin of 40 percent means 40 cents of every sale is working toward fixed cost coverage; at 20 percent, you need twice the sales volume to reach the same break-even point. Lower-margin businesses are more operationally sensitive to volume fluctuations.

Worked example

A boutique candle maker has $4,200 in monthly fixed costs: $2,800 in rent and utilities, $900 in insurance and subscriptions, and $500 in loan repayment. Each candle sells for $28. Wax, wicks, fragrance, jars, and packaging cost $9.40 per unit. Contribution margin per candle: $28.00 minus $9.40 equals $18.60. Break-even units: $4,200 divided by $18.60 equals 226 candles per month. Break-even revenue: 226 candles times $28 equals $6,328 per month. At 300 candles per month, the margin of safety is 74 units or about 25 percent above break-even. If the maker considers a $4 price increase to $32, the contribution margin rises to $22.60 and break-even drops to 186 units. That single pricing decision reduces the minimum sales requirement by 40 units per month.

Common mistakes in break-even analysis

The most frequent error is treating mixed costs as purely fixed or purely variable. Electricity, for example, has a fixed base charge and a variable usage component. Splitting mixed costs correctly by analyzing past bills or using an industry split ratio produces a more accurate contribution margin. The second common error is omitting owner draws or opportunity cost from fixed costs. If the business owner is not paying themselves a market salary, the break-even point looks lower than it really is. A business that only breaks even when the owner works for free is not genuinely viable. The third error is ignoring volume discounts on variable costs. If your cost per unit drops once you order in bulk, your contribution margin improves at higher volumes. That creates a dynamic break-even curve rather than a flat threshold and should be modeled at multiple volume levels.

Related tools

Break-even analysis connects directly to margin of safety planning and working capital management. Once you know your break-even point, use the loan payoff calculator to see how debt repayment affects your monthly fixed costs and how much faster a higher payment schedule lowers your break-even threshold. If you are evaluating whether to invest retained profits back into the business rather than paying off a loan early, the compound interest calculator lets you model the opportunity cost of each path. Pricing decisions that improve your contribution margin compound over time in the same way interest compounds: small improvements to margin percentage create outsized effects at scale because every sale above break-even runs at the improved margin. Use the loan payoff calculator to model how debt repayment affects monthly fixed costs, or the compound interest calculator to weigh reinvestment against early debt payoff.

Frequently asked questions

What is the break-even formula?
Break-even units equal total fixed costs divided by the contribution margin per unit. Contribution margin per unit equals selling price minus variable cost per unit. Break-even revenue equals break-even units multiplied by selling price.
What counts as a fixed cost versus a variable cost?
Fixed costs stay constant regardless of how many units you produce or sell: rent, salaries, insurance, software subscriptions, and loan payments are typical examples. Variable costs change in proportion to output: raw materials, packaging, per-unit shipping, and sales commissions are common variable costs. Some costs are mixed and have both a fixed base and a variable component, such as a utility bill with a base charge plus usage fees.
What is contribution margin and why does it matter?
Contribution margin is the selling price minus variable cost per unit. It is the amount each sale contributes toward covering fixed costs and eventually generating profit. A higher contribution margin means fewer units are needed to reach break-even. Products or services with low contribution margins require high sales volumes to be profitable.
How does break-even analysis change if I have multiple products?
For multiple products, calculate a weighted average contribution margin based on the expected sales mix of each product, then divide total fixed costs by the weighted average. If 60 percent of sales come from Product A with a $20 contribution margin and 40 percent from Product B with a $10 contribution margin, the weighted average is $16 and you divide fixed costs by $16 to find break-even units.
What is the margin of safety?
Margin of safety is the difference between your actual or projected sales volume and the break-even point. It tells you how much sales can drop before you incur a loss. A margin of safety of 20 percent means sales could fall by 20 percent before the business breaks even. A low margin of safety signals operational risk, particularly in businesses with high fixed cost structures.
How does a price change affect break-even?
A price increase raises contribution margin per unit and lowers break-even units. A price decrease does the opposite. Because contribution margin is the denominator of the break-even formula, pricing decisions have a nonlinear effect: a 10 percent price cut on a product with a 30 percent contribution margin reduces contribution margin by roughly one-third, which requires a much larger increase in unit sales to compensate.
Can I use break-even analysis for a service business?
Yes. For service businesses, use revenue break-even rather than unit break-even. Your variable cost is the direct cost of delivering the service per dollar of revenue billed, and your selling price is the billing rate. Break-even revenue equals fixed costs divided by contribution margin as a percentage of revenue. Hourly consulting businesses, for example, can set their minimum billable hours target this way.