How to use the break-even calculator
- Enter your fixed costs for a period — one month or one year.
- Enter the selling price and the variable cost of one unit.
- Optionally add a target profit for the same period, or the number of units you expect to sell.
- The result is the number of units (and revenue) needed in that same period.
The formulas
Contribution margin = Price − Variable cost per unit Break-even units = Fixed costs ÷ Contribution margin Break-even revenue = Break-even units × Price = Fixed costs ÷ (Contribution margin ÷ Price) Units for target = (Fixed costs + Target profit) ÷ Contribution margin Margin of safety = (Expected units − Break-even units) ÷ Expected units
Worked example
A small candle business has $10,000 of fixed costs a year. Each candle sells for $50 and costs $30 in wax, fragrance, jar, label, packaging and fees:
- Contribution margin = $50 − $30 = $20 per candle (40%)
- Break-even = $10,000 ÷ $20 = 500 candles, or $25,000 in sales
- To earn a $5,000 profit: ($10,000 + $5,000) ÷ $20 = 750 candles
- If you expect to sell 800, the margin of safety is (800 − 500) ÷ 800 = 37.5%
Fixed vs variable costs
| Fixed costs (per period) | Variable costs (per unit) |
|---|---|
| Rent or lease | Raw materials and ingredients |
| Salaries and owner’s draw | Packaging and labels |
| Insurance and licences | Shipping to the customer |
| Website, software and subscriptions | Marketplace and payment fees |
| Equipment loan payments | Sales commissions |
| Basic utilities and phone | Hourly labour per unit |
Ways to lower your break-even point
- Raise the price: a small increase goes straight into the contribution margin. Raising the price in the example from $50 to $55 cuts break-even from 500 to 400 units.
- Cut variable costs: buy materials in bulk, reduce packaging or negotiate shipping rates.
- Reduce fixed costs: share space, cancel unused subscriptions or delay big purchases.
- Sell a better mix: push products with the highest contribution margin.
Limits of break-even analysis
The simple model assumes the price and variable cost stay the same at every volume and that everything you make is sold. In real life, bulk discounts lower variable costs, you may need to cut prices to sell more, and fixed costs jump when you need more space or staff. Treat the break-even point as a planning guide and recalculate whenever prices or costs change. For businesses selling several products, use an average weighted price and variable cost, or work out each product line separately.
Break-even is also useful before you spend money: if a new machine adds $3,000 a year of fixed cost, divide by your contribution margin to see how many extra units it must help you sell each year just to pay for itself./p>