Quick answer
Break-even point in units = fixed costs ÷ (selling price per unit − variable cost per unit). Use costs from the same period, and round up when you can only sell whole units.
Break-even is the volume at which you stop losing money and have not yet started making any. The arithmetic is simple enough to do on a napkin, which is probably why it gets treated as a box-ticking exercise for a business plan rather than an operating tool.
The calculation
Two numbers matter. Fixed costs are what you pay regardless of how much you sell — rent, insurance, salaried staff, software subscriptions. Variable costs are what each additional sale costs you — materials, packaging, payment processing, shipping.
- Contribution margin per unit = selling price − variable cost per unit
- Break-even volume = fixed costs ÷ contribution margin per unit
- Break-even revenue = fixed costs ÷ contribution margin ratio
Suppose your fixed costs are $8,000 a month, you sell at $75, and each unit costs you $30 to make and deliver. Your contribution margin is $45 per unit, a ratio of 60%. The mathematical break-even point is 8,000 ÷ 45 = 177.78 units, equivalent to $13,333.33 in revenue. If you sell whole units, round up to 178 units: $13,350 revenue leaves $10 after these fixed and variable costs.
Try it freeBreak-Even CalculatorFind the sales volume where you stop losing money.The contribution margin is the real output
The 178 tells you whether the month worked. The $45 tells you what to do about it. Under this simplified cost model, each extra unit adds $45 to profit — not $75. That distinction changes decisions.
It tells you what a marketing campaign can cost. If you spend $900 on ads and it brings 20 sales, you have generated $900 of contribution and broken even on the spend — anything less than 20 sales and the campaign lost money, regardless of how good the revenue figure looked.
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It also tells you which lever moves fastest. Raising your price by $5 lifts contribution to $50 and drops break-even to 160 units — a 10% reduction from a 6.7% price rise. Cutting a $5 variable cost does exactly the same thing. Cutting $500 of fixed costs only moves break-even to 167. Price and variable cost are almost always the more powerful levers, and they are the ones people are most reluctant to touch.
When break-even is unreachable
If your variable cost is at or above your selling price, your contribution margin is zero or negative and there is no break-even volume. Selling more makes the loss larger. This sounds like an obvious situation to notice, but it is remarkably common once payment fees, shipping, returns and the labour actually required per unit are all counted honestly.
If you cannot name your variable cost per unit to within a dollar, you do not yet know whether you are profitable. Build that number before you build a sales target.
Where the simple version breaks down
The formula assumes one product at one price with one variable cost. Real businesses have a mix. The usual fix is a weighted contribution margin: work out the contribution of each product, weight it by its share of unit sales, and use that blended figure. It is approximate, and it goes stale whenever your mix shifts — which is itself useful information, because a shift towards lower-margin products raises your break-even without anything visible changing.
The formula also treats fixed costs as genuinely fixed. Over a year they rarely are. Growth adds staff, space and tooling in steps, so break-even tends to jump rather than drift. Recalculating quarterly catches this before a good month turns out not to have been one.
Finally, break-even is about profit, not cash. You can clear break-even comfortably and still run out of money if customers pay in sixty days and suppliers want paying in thirty. Profitability and solvency are different questions, and small businesses fail on the second one far more often than the first.
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Frequently asked questions
- What is a contribution margin?
- Selling price minus the variable cost of one unit. It is the amount each sale contributes towards fixed costs, and once fixed costs are covered, it is the profit per additional sale.
- How do I calculate break-even in revenue rather than units?
- Divide fixed costs by the contribution margin ratio. With $8,000 of fixed costs and a 60% contribution ratio, break-even revenue is $13,333.
- Should my salary count as a fixed cost?
- If you need to be paid to keep going, yes. Leaving the owner’s pay out of fixed costs produces a break-even point that quietly assumes you work for free.
- How often should I recalculate it?
- Quarterly, and after any change to pricing, suppliers, rent or headcount. Break-even moves in steps rather than smoothly.
General information only — not tax, legal, accounting or financial advice. Rates change and individual circumstances vary. Confirm figures with the CRA, the IRS, your state or provincial authority, or a licensed professional before acting on them.
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Sources & methodology
FTT Finance-To-Thrive is an independent publisher of free finance calculators. The links below explain the rules and assumptions relevant to this page. Calculators use simplified models; for example, state and provincial income-tax estimates may omit brackets, credits, or local rules. See the formula and limitations on each calculator. We are not accountants, tax preparers, mortgage brokers or financial advisors, and nothing on this page is advice. Rates change and individual circumstances vary — confirm figures against the primary source before you file, sign or commit money. Read more about how we work and our funding & disclosure.
Page content last updated 2026-09-13
Primary sources
Source links are provided separately from the original content dates. They do not imply that an authority endorses this site or that every figure has been independently reviewed.
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