Break-even point formula guide

Break-Even Point Formula: How to Calculate It With an Example

The break-even point is the sales level where revenue equals total costs. Below it you lose money, above it you make a profit.

The formulas

  • Contribution per unit = price – variable cost per unit
  • Break-even units = fixed costs / contribution per unit
  • Break-even revenue = break-even units x price

Worked example

A small business has $12,000 of fixed costs a month. It sells a product for $50 and the variable cost (materials, shipping, fees) is $30 a unit.

StepCalculationResult
Contribution per unit$50 – $30$20
Break-even units12,000 / 20600 units
Break-even revenue600 x $50$30,000

Add a profit target

Units needed = (fixed costs + target profit) / contribution per unit. To make $4,000 a month: (12,000 + 4,000) / 20 = 800 units, which is $40,000 of sales.

Break-even using margin

Contribution margin ratio = $20 / $50 = 40%. Break-even revenue = fixed costs / ratio = 12,000 / 0.4 = $30,000, the same answer.

Excel version

Fixed costs in B1, price in B2, variable cost in B3: units =B1/(B2-B3), revenue =B1/(B2-B3)*B2. Always round units up, since you cannot sell part of a unit.

What it ignores

  • It assumes a constant price and variable cost.
  • Fixed costs can step up as you grow.
  • For services, use billable hours instead of units.

To check your margins first, read how to calculate gross profit and markup vs margin. Compare investments with the ROI calculator.

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    Frequently asked questions

    What happens below the break-even point?

    The business makes a loss because contribution does not cover fixed costs.

    Is break-even the same as profit?

    No. At break-even profit is zero. Profit starts after it.

    How do I lower my break-even point?

    Cut fixed costs, raise the price, or reduce the variable cost per unit.

    Can I use it for a service business?

    Yes. Use revenue per billable hour as the price and direct cost per hour as the variable cost.

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