How to Calculate Break-Even
What is Break-Even?
The break-even point is where total revenue equals total costs — no profit, no loss. Below break-even, the business loses money; above it, every unit sold contributes to profit.
Formula
Break-even units = Fixed costs / (Selling price − Variable cost per unit)
- Q
- Break-Even Quantity (units)
- F
- Fixed Costs ($)
- P
- Unit Selling Price ($/unit)
Step-by-Step Guide
- 1Contribution Margin = Selling Price − Variable Cost per Unit
- 2Break-Even Units = Fixed Costs ÷ Contribution Margin
- 3Break-Even Revenue = Break-Even Units × Selling Price
- 4Margin of Safety = Actual Sales − Break-Even Sales
Worked Examples
Input
$50,000 fixed costs, $25 selling price, $10 variable cost
Result
Contribution = $15; Break-even = 3,333 units; Revenue = $83,325
Frequently Asked Questions
What are fixed costs vs variable costs?
Fixed costs (rent, salaries) don't change with production. Variable costs (materials, shipping) scale with units produced. Contribution margin = Price − Variable cost.
What happens after break-even?
Every unit sold beyond break-even contributes its full contribution margin to profit (before taxes). This is where profitability accelerates.
How do I lower my break-even point?
Reduce fixed costs, raise selling price, or lower variable costs. Even small improvements multiply across all units sold.
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