How to calculate your break-even point
Break-even is not about covering costs with revenue. It is about how much of each sale is left after the costs that grow with it.
The short answer
Break-even is fixed costs divided by contribution per unit, where contribution is price minus variable cost. Dividing fixed costs by price instead is the usual error, and it understates the volume you need by however much each unit costs you to make.
The formula
contribution per unit = price - variable cost
break-even units = fixed costs / contribution per unit
break-even revenue = break-even units x price
profit = units sold x contribution - fixed costs
margin of safety = (units sold - break-even units) / units sold
If contribution is zero or negative there is no break-even volume. That is the answer, not an edge case to guard against — every additional sale increases the loss.
Worked example
$4,200 of fixed costs a month, $6.20 of variable cost per unit, sold at $14.00:
contribution = 14.00 - 6.20 = 7.80 (55.7% of price)
break-even = 4,200 / 7.80 = 539 units → $7,538 of revenue
at 720 units: profit = 720 x 7.80 - 4,200 = 1,416
margin of safety = (720 - 539) / 720 = 25.2%
cut the price to 12.00: contribution = 5.80, break-even = 724 units
A 14% price cut raised the break-even volume by 34%. Contribution falls much faster than price does, which is why discounting to chase volume so often moves a business further from break-even rather than closer.
Sorting fixed from variable
Fixed costs are the ones that arrive whether or not you sell anything: rent, salaries, software, insurance. Variable costs scale with each unit: materials, packaging, payment fees, per-unit shipping.
The awkward ones are the middle cases. Overtime is variable in practice but sits inside a salary line. A payment processor's percentage is variable; its monthly fee is fixed. Splitting them properly is most of the work, and getting it wrong moves break-even in whichever direction you misfiled.
Margin of safety is the number to watch
Break-even tells you where the floor is. Margin of safety tells you how far above it you are standing, as a percentage of current sales.
A business at 5% margin of safety and one at 40% can have identical profit this month and completely different risk. A quiet quarter ends one and inconveniences the other.
What this leaves out
- One product at one price. A mixed range needs a weighted average contribution, which shifts whenever the mix does.
- Variable cost per unit is constant. Bulk discounts and capacity limits both break that assumption.
- Fixed costs are genuinely fixed across the volume range examined. Adding a shift or a unit makes them step, not stay flat.
- Cash timing is ignored. Breaking even and being able to pay this month are different questions.
This arithmetic is free to run in your browser — no signup, nothing held back.
Open the free calculatorCommon questions
- Why divide by contribution and not by price?
- Because only part of each sale is available to cover fixed costs — the rest went on making the thing. Dividing by price assumes every dollar of revenue is profit, which understates the volume you need by exactly the variable cost.
- What is a good margin of safety?
- There is no universal figure, but the useful test is seasonal: can you survive your quietest month? If your worst month falls below break-even, the annual average being comfortable does not help you in that month.
- Does break-even include my own salary?
- It should, if you need to be paid. Leaving the owner's pay out produces a break-even point the business can hit while you earn nothing, which is not a break-even in any sense that matters.
Spreadsheets that do this
The formulas above, already built and checked — so you fill in your numbers rather than the arithmetic.
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Last reviewed 22 August 2026