Quick answer
Break-Even Units = Fixed Costs ÷ Contribution Margin per Unit. Example: $50,000 fixed costs, $100 selling price, $60 variable cost → CM = $40, break-even = 1,250 units or $125,000 revenue.
How to use this calculator
Enter your Total Fixed Costs (costs that don't change with volume: rent, salaries, insurance), the Selling Price per Unit, and the Variable Cost per Unit (costs that scale with production: materials, direct labour, packaging). The calculator instantly shows break-even in units and revenue, plus contribution margin and CM ratio.
Use the same currency for all inputs. If you sell multiple products, use a weighted average selling price and variable cost based on your expected sales mix.
Break-even formula
The break-even calculation starts with contribution margin — the amount each unit contributes to covering fixed costs:
$$\text{Contribution Margin} = \text{Selling Price} - \text{Variable Cost per Unit}$$
$$\text{CM Ratio} = \frac{\text{Contribution Margin}}{\text{Selling Price}} \times 100$$
Break-even in units and revenue:
$$\text{Break-Even Units} = \frac{\text{Fixed Costs}}{\text{Contribution Margin per Unit}}$$
$$\text{Break-Even Revenue} = \frac{\text{Fixed Costs}}{\text{CM Ratio}}$$
Both formulas give the same answer expressed differently. Use units when you produce a single product. Use revenue when you sell multiple products or services at varying prices — the CM ratio method averages across your product mix automatically.
Contribution margin explained
The contribution margin is the profit engine of a business. Every unit sold contributes its CM to: (1) paying down fixed costs, and (2) generating profit after fixed costs are covered.
| Units Sold | Revenue | Variable Costs | Contribution Margin | Fixed Costs | Profit / (Loss) |
|---|---|---|---|---|---|
| 0 | $0 | $0 | $0 | $50,000 | ($50,000) |
| 500 | $50,000 | $30,000 | $20,000 | $50,000 | ($30,000) |
| 1,000 | $100,000 | $60,000 | $40,000 | $50,000 | ($10,000) |
| 1,250 | $125,000 | $75,000 | $50,000 | $50,000 | $0 |
| 1,500 | $150,000 | $90,000 | $60,000 | $50,000 | $10,000 |
| 2,000 | $200,000 | $120,000 | $80,000 | $50,000 | $30,000 |
Worked examples
| Business | Fixed Costs | Price | Variable Cost | CM | CM Ratio | Break-Even Units | Break-Even Revenue |
|---|---|---|---|---|---|---|---|
| Coffee shop | $8,000/mo | $5.00 | $1.50 | $3.50 | 70% | 2,286 | $11,429 |
| SaaS product | $50,000/mo | $99 | $5 | $94 | 95% | 532 | $52,632 |
| E-commerce | $20,000/mo | $75 | $40 | $35 | 47% | 572 | $42,857 |
| Manufacturer | $200,000/mo | $500 | $300 | $200 | 40% | 1,000 | $500,000 |
Margin of safety
The margin of safety measures how much sales can fall before the business hits break-even — it quantifies the buffer between current performance and the loss threshold:
$$\text{Margin of Safety} = \frac{\text{Actual Revenue} - \text{Break-Even Revenue}}{\text{Actual Revenue}} \times 100$$
If your current revenue is $200,000 and break-even revenue is $125,000, your margin of safety is ($200,000 − $125,000) / $200,000 × 100 = 37.5%. This means sales could drop 37.5% before you start losing money. A margin of safety above 20% is generally considered healthy; below 10% indicates vulnerability to demand fluctuations.
Business applications
- Pricing decisions: If raw material costs rise, break-even analysis instantly shows what price increase is needed to maintain the same break-even point. It makes the trade-off between margin and volume explicit.
- Capacity planning: Before adding a new production shift or hiring additional staff, calculate how much break-even increases and what extra sales volume is needed to justify the investment.
- Fixed vs. variable cost trade-offs: Outsourcing converts fixed costs (employee salaries) to variable costs (contractor fees), lowering break-even but also capping the upside once volume exceeds the fixed-cost model's efficiency.
- New product launches: Before launching a product, use break-even to set a realistic sales target. If the break-even is 10,000 units/month in a market where 5,000 units is realistic, the economics don't work at the current cost structure.
- Investor presentations: Break-even analysis is a standard element of business plans and pitch decks — investors want to know when the business will stop burning cash.
Frequently asked questions
What is a break-even point?
The break-even point is the level of sales at which total revenue equals total costs — zero profit, zero loss. It can be expressed in units (how many products must be sold) or in revenue (how much total sales are needed). Below break-even, the business loses money; above it, every additional unit contributes pure profit equal to the contribution margin per unit.
What is the break-even formula?
Break-Even Units = Fixed Costs / Contribution Margin per Unit. Contribution Margin = Selling Price − Variable Cost per Unit. For $50,000 fixed costs, $100 price, $60 variable cost: CM = $40, break-even = 1,250 units. Break-Even Revenue = Fixed Costs / CM Ratio = $50,000 / 0.40 = $125,000.
What counts as a fixed cost vs. a variable cost?
Fixed costs are constant regardless of production volume: rent, salaried employees, insurance, subscriptions, loan repayments. Variable costs scale with sales: raw materials, packaging, direct hourly labour, shipping, sales commissions. Some costs are "semi-variable" (e.g., a utility bill with a fixed base charge plus per-unit usage) — split these into their fixed and variable components.
What is contribution margin ratio?
CM Ratio = Contribution Margin / Selling Price × 100. A CM ratio of 40% means 40 cents of every dollar of revenue contributes to covering fixed costs and generating profit. Higher CM ratios mean you reach break-even faster and keep more of each incremental dollar of revenue as profit.
How is break-even different from profit?
Break-even is not profitability — it's the zero-profit threshold. Profit = (Units Sold − Break-Even Units) × Contribution Margin per Unit. If you sell 1,500 units when break-even is 1,250, profit = 250 × $40 = $10,000. Every unit above break-even adds exactly one contribution margin in profit.