Break Even Calculator

How to use the break even calculator

1. Pick a period — a month or a year — and enter your fixed costs for that period.
2. Enter your selling price and variable cost per unit. A “unit” can be a product, a billable hour, a meal, a subscription or an average order.
3. Optionally add a target profit to see the sales needed to hit it, and your expected sales to see how much cushion you have above break-even.

The results update as you type. The chart plots revenue against total cost: where the lines cross is your break-even point, the shaded area to the right is profit and the area to the left is loss.

The break-even formula

Every unit you sell contributes its price minus its variable cost toward paying your fixed costs. That amount is the contribution margin. Once enough units have been sold to cover all fixed costs, every additional unit is profit.

Break-even example

A small business has $30,000 a month in fixed costs. It sells its product for $50 and each unit costs $20 in materials, packaging and payment fees.

Sales could fall by a third before the business starts losing money. Those are the default numbers in the calculator above, so you can change one input at a time and watch the break-even point move.

How price and costs move your break-even point

Small changes to price have an outsized effect because they flow straight into contribution margin. Using the example’s $30,000 of fixed costs and $20 variable cost:

Cutting the price from $50 to $40 doesn’t lower break-even by a fifth — it raises it by half, from 1,000 to 1,500 units. That’s why discounting is so risky for businesses with modest contribution margins. You can lower your break-even point three ways:

• Raise prices (or shift your mix toward higher-margin products).
• Reduce variable costs — better supplier pricing, lower shipping, cheaper payment processing.
• Reduce fixed costs — renegotiate rent, cut unused subscriptions, outsource instead of hiring.

Fixed costs vs variable costs

Some costs are mixed — a phone plan with a base fee plus usage, for example. Split them into their fixed and variable parts for the most accurate answer. Equipment is a fixed cost spread over its life; the depreciation calculator gives you the annual figure.

Margin of safety and operating leverage

The margin of safety tells you how far sales can fall before you hit break-even. Expressed as a percentage of expected sales, it’s a quick risk gauge: a thin margin of safety means a slow month could put you in the red.

Operating leverage measures how sensitive profit is to sales. The degree of operating leverage (DOL) equals total contribution margin divided by operating profit. In the example, DOL is 3.0, so a 10% increase in sales would lift profit by about 30% — and a 10% drop would cut it by the same amount. Businesses with high fixed costs have high operating leverage.

Limitations of break-even analysis

• It assumes price and variable cost per unit stay constant. In reality, volume discounts, price changes and overtime can bend the lines.
• Fixed costs are only fixed within a range — adding a second location or shift creates a new, higher break-even point.
• For multiple products, use a weighted-average contribution margin based on your sales mix.
• Break-even is before income tax. To hit an after-tax profit goal, divide it by (1 − your tax rate) before entering it as the target. Self-employed owners can estimate that rate with the 1099 tax calculator.

Pair this tool with the profit margin calculator to set prices, and the cost per acquisition calculator to check that your marketing cost per customer leaves room for contribution margin.