How to Calculate Your Break-Even Point (Formula & Examples)

Your break-even point is the number of sales at which revenue exactly covers all your costs, so you make neither a profit nor a loss. Find it by dividing your fixed costs by the profit each sale contributes (price minus variable cost per unit). For example, 10,000 in fixed costs at a contribution of 20 per unit means you need 500 sales. The Break-Even Calculator works it out instantly.

What is the break-even formula?

• Contribution per unit = price per unit − variable cost per unit
• Break-even units = fixed costs ÷ contribution per unit
• Break-even revenue = break-even units × price
• Units for a target profit = (fixed costs + target profit) ÷ contribution per unit
• Contribution margin = contribution ÷ price × 100

A worked example

A small business sells handmade candles:

Input	Value
Fixed costs (per month)	10,000
Price per candle	50
Variable cost per candle	30

Contribution per unit = 50 − 30 = 20. Break-even = 10,000 ÷ 20 = 500 candles, which is 25,000 in revenue. The contribution margin is 20 ÷ 50 = 40%.

To make a profit of 5,000 a month: (10,000 + 5,000) ÷ 20 = 750 candles.

Which costs are fixed and which are variable?

Fixed costs don't change with sales, for the period you choose (a month or a year):

• rent and utilities,
• salaries,
• software subscriptions and website hosting,
• insurance, loan repayments, accountant fees.

Variable costs rise with every sale:

• materials and stock,
• packaging and shipping,
• payment processing and marketplace fees,
• sales commission.

Keep the period consistent. If you enter monthly fixed costs, the break-even is a monthly number of sales.

How do you use the calculator?

1. Open the Break-Even Calculator.
2. Enter your fixed costs, price per unit and variable cost per unit.
3. Optionally enter a target profit.
4. Read the break-even units, break-even revenue, contribution per unit, contribution margin and, if you set a target, the units needed for it.

The calculator rounds break-even units up, because you can't sell part of a candle, and also shows the exact figure.

How do you lower your break-even point?

There are only three levers:

1. Raise the price. In the example, a price of 55 gives a contribution of 25, and break-even drops from 500 to 400 units.
2. Cut variable costs. Buying wax in bulk at 27 instead of 30 gives a contribution of 23 and a break-even of 435.
3. Cut fixed costs. Cutting fixed costs by 2,000 (to 8,000) brings break-even down to 400.

Price is usually the most powerful lever. Use the Profit Margin Calculator to test prices, and read margin vs markup so you don't underprice by mistake.

Break-even for a service business

Treat one hour or one project as the unit. A freelance designer with 1,500 of monthly fixed costs (software, internet, co-working), charging 40 an hour with 5 an hour of direct costs, needs 1,500 ÷ 35 ≈ 43 billable hours a month just to cover costs, before paying themselves anything. To set a rate that covers your own income too, use the Hourly Rate Calculator.

What mistakes should you avoid?

• Leaving out your own pay. If you work in the business, include a salary in fixed costs, or your "break-even" leaves you working for free.
• Forgetting fees. Card fees and marketplace commissions are variable costs.
• Including sales tax in the price. Use prices without VAT or GST; the VAT & GST Calculator strips it out.
• Assuming you'll sell at full price. If you often discount, use your average selling price.

Why break-even matters for a startup

Before you launch, break-even tells you whether the plan is realistic. If you need 500 sales a month but expect 200 visitors, you'll need to change the price, the costs or the plan. The SBA's startup cost guide, in the sources below, is a useful checklist for estimating fixed costs.

Run your own numbers in the free Break-Even Calculator. This guide is general information, not financial advice.