Break Even Calculator: When Does Your Business Become Profitable?
Learn how to calculate your break-even point, understand fixed vs variable costs, and plan for profitability.
The break-even point is where total revenue equals total costs—no profit, no loss. Knowing this helps you set realistic sales targets.
Break-Even Formula
Break-Even Units = Fixed Costs / (Price per Unit - Variable Cost per Unit)
The denominator (Price - Variable Cost) is called the "contribution margin"—each unit contributes this amount toward covering fixed costs.
Fixed vs Variable Costs
- Fixed costs: Don't change with sales volume (rent, salaries, insurance)
- Variable costs: Change with each unit sold (materials, shipping, commissions)
Example Calculation
Fixed costs: $5,000/month. Selling price: $50. Variable cost: $30. Break-even = $5,000 / ($50 - $30) = 250 units per month.
Break-Even in Dollars
Break-Even Revenue = Fixed Costs / Contribution Margin Ratio. Using the example: 250 units × $50 = $12,500 monthly revenue needed.
Reducing Break-Even Point
Increase prices, reduce variable costs (better suppliers), or reduce fixed costs (smaller space). Each improves your path to profitability.