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Guide · Break-Even

How to Find Your Break-Even Point

Sort your costs into fixed and variable, find the contribution per unit and work out the sales you need to break even.

By PriceAndProfit Editorial Updated 3 min read

On this page
  1. Four steps
  2. Adding a profit target
  3. Break-even analysis example
  4. Frequently asked questions

120 units Worked example

or $3,000 of sales a month for a maker with $1,800 of monthly fixed costs who sells at $25 with a $10 variable cost per unit

The break-even point is the sales volume at which you neither make nor lose money. Below it every month is a loss, above it every extra sale is profit. Knowing it tells you whether a price, a new expense or a slow month is a problem before the bank statement does.

Four steps

  1. List fixed costs

    Costs you pay whatever you sell, for one period: rent, software subscriptions, insurance, your own salary if you pay one. Example: $1,800 a month.

  2. Find the variable cost per unit

    Costs that come with each sale: materials, packaging, shipping you pay, payment and marketplace fees. Example: $10 per unit.

  3. Work out the contribution margin

    Price minus variable cost: $25 − $10 = $15. That is what each sale contributes toward fixed costs.

  4. Divide

    Fixed costs ÷ contribution margin: $1,800 ÷ $15 = 120 units a month, or 120 × $25 = $3,000 of revenue.

Adding a profit target

The same formula tells you what volume gives the profit you want: add the target to the fixed costs. For $900 of profit a month, ($1,800 + $900) ÷ $15 = 180 units. It also shows the effect of a price change. At $28 the contribution rises to $18 and the break-even drops to 100 units; at $22 it falls to $12 and the break-even rises to 150 units.

Tip

Some costs are mixed — a phone plan, a part-time helper. Put the fixed part in fixed costs and the part that grows with orders in the variable cost.

Break-even analysis example

The break-even point is most useful next to a sales plan. Say the maker above expects 150 units next month. That is 30 units, or $750 of sales, above the 120-unit break-even: a margin of safety of 20%, and a profit of 30 × $15 = $450. The table shows how sensitive that cushion is to the price.

Fixed costs $1,800, variable cost $10, plan 150 units
PriceContribution per unitBreak-even unitsBreak-even salesMargin of safety at 150 units
$22 $12 150 $3,300 0 units — no profit
$25 $15 120 $3,000 30 units (20%)
$28 $18 100 $2,800 50 units (33%)

Costs move the result just as much. If materials go up by $2, the contribution at $25 drops to $13 and break-even rises to 139 units, leaving a margin of safety of only 11 units. Before trusting any of these numbers, check how each cost behaves: a cost that is partly fixed and partly variable — a delivery contract with a monthly minimum, for example — should be split first, otherwise it lands entirely in one group and moves the break-even point.

A complete break-even analysis therefore has four parts: the break-even point in units, the same point in dollars of sales, the margin of safety against your realistic plan, and a short sensitivity check on the price and the largest variable cost. Write all four down with the date and the period they cover, so the next review starts from the same assumptions.

Frequently asked questions

Does break-even include my pay?

Only if you put it in fixed costs. If you do not, break-even means the business covers its costs while paying you nothing.

What if I sell several products?

Use the average contribution per unit weighted by your sales mix, or calculate break-even revenue with the contribution margin ratio.

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