How do you calculate the break-even point?
Divide your fixed costs by what each sale contributes after its own costs. In the example, $12,000 ÷ ($60 − $24) is 333.33, which rounds up to 334 units because you can't sell part of one. This is the same formula the Small Business Administration uses.
Break-even units = fixed costs ÷ (price − variable cost per unit)Break-even sales = fixed costs ÷ contribution margin ratioThe gap between price and variable cost is your contribution margin: $36 here, or 60% of the price. Dividing $12,000 by 60% gives $20,000 in break-even sales. Whole units bring in slightly more, $20,040.
| Fixed costs | $5 a sale | $10 a sale | $20 a sale | $40 a sale | $75 a sale | $150 a sale |
|---|---|---|---|---|---|---|
| $2,000 | 400 | 200 | 100 | 50 | 27 | 14 |
| $5,000 | 1,000 | 500 | 250 | 125 | 67 | 34 |
| $10,000 | 2,000 | 1,000 | 500 | 250 | 134 | 67 |
| $25,000 | 5,000 | 2,500 | 1,250 | 625 | 334 | 167 |
| $50,000 | 10,000 | 5,000 | 2,500 | 1,250 | 667 | 334 |
| $100,000 | 20,000 | 10,000 | 5,000 | 2,500 | 1,334 | 667 |
Break-even analysis with an example: how far above it are you?
If you expect to sell 450 units, you'd earn $4,200 of profit. You'd sit 116.7 units above break-even, so sales could fall 25.9% before you lose money. That cushion is your margin of safety.
| Units sold | Revenue | Total cost | Profit or loss |
|---|---|---|---|
| 100 | $6,000 | $14,400 | -$8,400 |
| 200 | $12,000 | $16,800 | -$4,800 |
| 334 | $20,040 | $20,016 | $24 |
| 400 | $24,000 | $21,600 | $2,400 |
| 450 | $27,000 | $22,800 | $4,200 |
| 600 | $36,000 | $26,400 | $9,600 |
To reach a profit goal, add it to fixed costs before you divide. Earning $5,000 takes ($12,000 + $5,000) ÷ $36, or 473 units. Profit moves faster than sales here. A 10% change in units from 450 moves profit about 39%, because fixed costs don't move with it.
How to do a break-even chart
A break-even chart needs three lines, and the calculator above draws them for you. Units sold run along the bottom and dollars up the side.
- Fixed costs are a flat line at $12,000.
- Total cost starts at that same $12,000 and rises $24 with each unit.
- Revenue starts at zero and rises $60 with each unit.
Revenue and total cost cross at 333.3 units. To the left, the gap between them is your loss. To the right, it's your profit. A steeper revenue line from a higher price pulls the crossing to the left, and so does a flatter cost line from a lower variable cost. If the two lines never meet, your price doesn't clear your variable cost, which the next sections cover. The SBA says a break-even analysis is usually required to take on investors or debt, so expect to show this in a business plan.
Break-even analysis with multiple products
Use a weighted average contribution based on your sales mix. The example below has $15,000 of fixed costs and sells 5 Basic, 3 Standard, and 2 Premium out of every 10 units. That averages $40.10 of contribution per unit, so break-even is 375 units in total.
| Product | Price | Variable cost | Contribution | Units to break even |
|---|---|---|---|---|
| Basic | $40 | $18 | $22 | 188 |
| Standard | $75 | $30 | $45 | 113 |
| Premium | $120 | $42 | $78 | 75 |
That answer holds only for that mix. Moving to 2 Basic, 3 Standard, and 5 Premium drops break-even to 264 units. Moving to 8 Basic and 2 Standard raises it to 564. If your total sales look fine but profit falls, check whether your mix has shifted toward lower-margin products.
What if your price is below your variable cost?
Then the answer is never. At a $20 price and a $24 variable cost, you lose $4 on each sale, so more volume makes the loss bigger. Cutting rent won't fix it either. Only a higher price or a lower cost per unit will.
Even above that line, price has an outsized effect. In the main example, a 5% price rise lowers break-even from 334 to 308 units, while a 5% price cut raises it to 364. A new $1,000 monthly cost adds 28 units. These figures assume sales don't change when the price does, and that assumption is often wrong, so test both directions.
When a break-even number misleads you
The biggest trap is leaving out your own pay. If you need $4,000 a month to live on, it belongs in fixed costs. In the example, that moves break-even from 334 to 445 units. Hitting the lower number would mean the business covers its bills but pays you nothing.
- Mixed costs. Phone service, repairs, and fuel have fixed and variable parts. The SBA suggests splitting them, and the answer gets more accurate when you do.
- Costs that jump. Fixed costs stay fixed only up to a point. A second location or a new hire moves the whole line up. The advanced options include a capacity check for this.
- Cash timing. Break-even is a profit measure. You can pass it and still run short while waiting on customers or paying for stock upfront.
- Startup costs. One-time costs aren't part of the monthly break-even point. Enter them in the advanced options to see how long your profit takes to repay them, or use the NPV calculator to test the whole investment.
A Small Business Development Center can review your assumptions with you. An accountant can help you sort costs from your own books. To set the price in the first place, try the profit margin calculator.
Common questions
What counts as a fixed cost?
Fixed costs are what you pay in a period whether or not you sell anything, such as rent, salaries, insurance, and software. If a cost isn't monthly, spread it out. A yearly insurance bill of $2,400 counts as $200 a month.
Should loan payments count as fixed costs?
Yes, for planning cash, since you have to cover the whole payment each month. Our business loan calculator shows that payment.
Can I use this for a service business?
Yes. Treat an hour, a job, or a client as your unit, and count only the costs that rise with each one as variable. If you work alone, include your own pay in fixed costs, or use the freelance rate calculator to work from your income goal.
How do I find a break-even for a refinance or Social Security?
Those are different questions with the same name. For a mortgage, the refinance calculator finds when savings repay closing costs. This calculator is for business sales only and doesn't cover Social Security claiming.
Does break-even include taxes?
Not at the break-even point, since a business with no profit generally owes no income tax on it. For a profit target, you can enter a flat tax rate in the advanced options to work back from your after-tax goal.
Sources
- Calculate your startup costs (break-even analysis) · U.S. Small Business Administration
- Small Business Development Centers · U.S. Small Business Administration