Break Even Calculator
Calculate your break-even point and contribution margin instantly
Rent, salaries, insurance, etc.
Materials, labor, shipping per unit
Selling price per unit
Enter your costs and price
to calculate break-even point
Quick Examples
What is Break-Even Analysis?
Break-even analysis is a financial calculation that helps business owners determine the point at which their total revenue equals total costs. At the break-even point, a business is neither making a profit nor incurring a loss—it's simply covering all its expenses.
Understanding your break-even point is crucial for pricing decisions, financial planning, and assessing business viability. It answers the fundamental question: "How many units do I need to sell to cover my costs?"
The break-even point is calculated using fixed costs, variable costs per unit, and the selling price per unit. This information helps entrepreneurs make informed decisions about pricing strategies, cost management, and sales targets.
Key Terms Explained
Fixed Costs
Expenses that remain constant regardless of production volume. Examples include rent, salaries, insurance, and loan payments. These costs must be paid even if you sell zero units.
Variable Costs
Costs that change in proportion to production volume. These include raw materials, direct labor, packaging, and shipping costs per unit. Higher production means higher variable costs.
Contribution Margin
The amount remaining from sales revenue after variable costs are deducted. This contribution goes toward covering fixed costs and generating profit. Formula: Price per Unit - Variable Cost per Unit.
Break-Even Point
The point where total revenue equals total costs. At this point, your business is not making a profit or loss. Formula: Fixed Costs ÷ Contribution Margin per Unit.
How to Use This Calculator
Enter Fixed Costs
Input all your fixed costs for the period you're analyzing (usually monthly or yearly). Include rent, salaries, utilities, insurance, and any other expenses that don't change with production volume.
Add Variable Cost Per Unit
Calculate the cost to produce or deliver one unit of your product or service. This includes materials, direct labor, packaging, and shipping costs per unit.
Set Your Price
Enter the selling price per unit. The calculator will automatically compute your contribution margin and break-even point as you type.
Optional: Add Target Profit
Switch to "With Target Profit" mode to see how many units you need to sell to achieve a specific profit goal. This helps with goal setting and financial planning.
Why Break-Even Analysis Matters
Break-even analysis is one of the most important financial tools for business owners and entrepreneurs. It provides critical insights that help you make better business decisions:
- • Pricing Strategy: Understand the minimum price needed to cover costs and how price changes affect profitability.
- • Financial Planning: Set realistic sales targets and revenue goals based on cost structure.
- • Cost Management: Identify opportunities to reduce fixed or variable costs to improve profitability.
- • Business Viability: Assess whether a business idea is financially feasible before investing significant resources.
- • Risk Assessment: Understand how far sales can drop before the business starts losing money.
Frequently Asked Questions
What if my variable cost per unit is higher than my price?
If your variable cost exceeds your selling price, you're losing money on every sale. This means you need to either reduce costs, increase prices, or reconsider your business model. No amount of sales will make this profitable.
Should I calculate break-even monthly or yearly?
It depends on your business. Most businesses calculate monthly break-even points for better cash flow management. However, seasonal businesses or those with annual contracts might prefer yearly calculations. Use the time period that matches your fixed costs.
What's a good contribution margin?
Contribution margin varies by industry. Service businesses often have margins of 70-90%, while retail might be 30-50%. Higher margins mean you need fewer sales to break even. Generally, aim for at least 30-40% to ensure profitability after covering fixed costs.
How often should I recalculate my break-even point?
Recalculate whenever there are significant changes to your costs or pricing. This typically means quarterly reviews at minimum, but also after any major cost changes, price adjustments, or business model shifts. Regular monitoring helps you stay profitable.
Is this calculator suitable for service businesses?
Yes! Service businesses can use this calculator by treating billable hours or client projects as "units." Your variable costs might include contractor payments, software licenses per client, or direct labor costs. The principles remain the same.