Break-Even Analysis Calculator
Calculates the unit break-even point, projected profit at a target sales volume, or contribution margin ratio for your business. Use it when pricing a product, evaluating a new venture, or assessing how a cost change affects profitability.
About this calculator
Break-even analysis identifies the exact sales volume at which total revenue equals total costs — producing neither profit nor loss. The core formula for break-even units is: Break-Even Units = Fixed Costs / (Price per Unit − Variable Cost per Unit). The denominator, Price − Variable Cost, is called the contribution margin — the amount each unit sold contributes toward covering fixed costs and, beyond break-even, generating profit. Once fixed costs are covered, every additional unit sold generates profit equal to the contribution margin. Profit at a given sales volume is calculated as: Profit = (Target Units × Contribution Margin) − Fixed Costs. The contribution margin ratio, expressed as a percentage, is: CM Ratio (%) = ((Price − Variable Cost) / Price) × 100. This ratio shows what fraction of every revenue dollar remains after covering variable costs, making it useful for comparing products with different price points.
How to use
Suppose your fixed costs are $15,000 per month, you sell a product at $80 per unit, and variable costs are $35 per unit. Contribution margin = $80 − $35 = $45. Break-even units = ⌈15,000 / 45⌉ = ⌈333.3⌉ = 334 units. To find profit at 500 units: Profit = (500 × 45) − 15,000 = $22,500 − $15,000 = $7,500. Contribution margin ratio = (45 / 80) × 100 = 56.25%. This means 56.25 cents of every revenue dollar covers fixed costs and profit, and you must sell at least 334 units each month before you start making money.
Frequently asked questions
How does changing the price per unit affect the break-even point for my business?
Raising the price per unit increases the contribution margin — the gap between price and variable cost — so fewer units are needed to cover fixed costs and the break-even point falls. Lowering the price does the opposite: the contribution margin shrinks, and you need to sell more units just to cover fixed costs. This relationship is highly sensitive; a seemingly small price reduction can dramatically increase the volume required to break even. For example, dropping price from $80 to $70 on a product with $35 variable cost raises break-even units from 334 to 500 (assuming $15,000 fixed costs). Always re-run break-even analysis whenever you consider a pricing change.
What is the difference between fixed costs and variable costs in a break-even analysis?
Fixed costs remain constant regardless of how many units you produce or sell — examples include rent, salaried wages, insurance, and loan repayments. Variable costs scale directly with production volume — examples include raw materials, packaging, sales commissions, and shipping. The distinction matters because fixed costs set the 'floor' you must clear with contribution margin, while variable costs determine how much of each sale's revenue is actually available to contribute toward that floor. Misclassifying a fixed cost as variable (or vice versa) will produce an inaccurate break-even point and misleading profitability projections. Semi-variable costs (like utilities) can often be split into a fixed component and a per-unit variable component for greater accuracy.
When should a business use break-even analysis and what are its limitations?
Break-even analysis is most useful when launching a new product, setting a price, evaluating a cost-reduction initiative, or deciding whether a specific sales target is realistic. It gives a clear, quantitative answer to 'how much do we need to sell to justify this cost structure?' Its main limitations are that it assumes a single product with constant costs and prices — real businesses often have product mixes, volume discounts, and stepped fixed costs that complicate the picture. It also ignores the time value of money and does not account for the cash flow timing between paying costs and collecting revenue. Use it as a first-pass decision tool alongside more detailed financial modeling for major capital decisions.