---
title: "Break-even point"
description: "What the break-even point is, the formulas for break-even units and sales, how to add a target profit, multi-product break-even, and a worked example."
canonical: https://ledgeriano.com/glossary/break-even-point
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Break-even point

> What the break-even point is, the formulas for break-even units and sales, how to add a target profit, multi-product break-even, and a worked example.

The break-even point is the sales volume at which total revenue exactly equals total costs, so the business makes neither a profit nor a loss. In units it equals fixed costs divided by the contribution margin per unit; in revenue it equals fixed costs divided by the contribution margin ratio. Every sale above it adds profit.

Break-even analysis rests on splitting costs into fixed and variable. Once you know how much each unit contributes after its variable costs, the question becomes simple: how many contributions do you need to pay for the fixed costs?

The same logic answers related questions. Add a target profit to fixed costs to find the volume that earns it. With several products, use a weighted average contribution margin based on the expected sales mix; the answer then holds only while the mix holds.

Break-even assumes constant prices and unit costs within a relevant range, and that production equals sales. Use the [break-even calculator](https://ledgeriano.com/tools/break-even-calculator) for a quick answer, or run cost-volume-profit analysis on your actual ledger in Ledgeriano, as described in the [management accounting guide](https://ledgeriano.com/guides/management-accounting).

```
Break-even units = Fixed costs ÷ (Price - Variable cost per unit)
Break-even sales = Fixed costs ÷ CM ratio
Units for target profit = (Fixed costs + Target profit) ÷ Unit contribution
```

## Example: a bakery

Fixed costs are 30,000 a month, a cake sells for 50 and its variable cost is 30. Unit contribution is 20, so break-even is 30,000 ÷ 20 = 1,500 cakes, or 75,000 in sales. To earn 10,000 the bakery needs (30,000 + 10,000) ÷ 20 = 2,000 cakes.

### Why round break-even units up?

Because a fractional unit cannot be sold. At 1,499 units the business is still slightly below break-even.

### Does break-even include taxes?

Use amounts net of VAT. Income tax does not affect the break-even point itself, because there is no tax on zero profit, but it matters when you set an after-tax target profit.

Guide: https://ledgeriano.com/guides/management-accounting