How to calculate your break-even point
Break-even is the number of sales that covers your costs and nothing more. Here is the formula, what counts as fixed versus variable cost, and the levers that move it.
Break-even in one formula
The break-even point is the number of units you must sell for revenue to cover all your costs, so profit is exactly zero:
Break-even units = Fixed costs ÷ (Price − Variable cost per unit)
The bottom part — price minus variable cost — is the contribution margin: what each sale contributes toward your fixed costs.
Spend 1,00,000 a month on fixed costs, sell at 500 with a 200 variable cost, and each unit contributes 300. That needs 334 units to break even, or about 1,67,000 in sales. Sell 400 and the extra 66 units are pure contribution.
Fixed versus variable: the sort that matters
The formula is only as good as how you sort your costs:
- Fixed — do not change with volume: rent, salaries, insurance, software subscriptions.
- Variable — rise with each unit: materials, packaging, payment fees, shipping.
Most founders underestimate fixed costs by forgetting annual payments, and under-count variable costs by ignoring payment fees. Get those two buckets roughly right and the number is honest.
The levers that move your break-even
Three inputs, three levers:
- Raise the price — the fastest lever. It lifts the contribution margin directly. A 10% price rise on a 300 contribution raises it to 350 and cuts break-even from 334 units to 286.
- Cut variable cost — a cheaper supplier or a better shipping rate widens the margin the same way.
- Cut fixed costs — moves the whole target down, but it is usually the slowest and most painful.
Pricing is the highest-leverage of the three, which is why margins matter so much — and why it is worth knowing the difference between margin and markup before you change a price. The profit margin calculator shows both.
Break-even is a starting line, not a target
Breaking even means you survived the month, not that you built anything. The useful habit is to compute the break-even number before you commit to a cost — a new hire, a bigger office, a subscription — and ask how many more units it takes to cover it.
Run your own numbers in the break-even calculator; it shows the units and the revenue, and every unit past the line drops straight to profit.
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