Break-even calculator: how many units do you need to sell?
The break-even point is the sales volume at which total revenue equals total costs, so profit is zero. Divide fixed costs by the contribution margin per unit (price minus variable cost per unit). With fixed costs of 30,000, a price of 50 and a variable cost of 30, you break even at 1,500 units, or 75,000 in sales.
Calculate your break-even point
For the period: rent, salaries, insurance, software
Per unit
Per unit
Results
- Break-even volume
- 1,500 units
- Break-even sales
- 75,000.00
- Contribution margin per unit
- 20.00
- Contribution margin ratio
- 40%
1,500
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Break-even formula
Every unit you sell contributes its price minus its variable cost toward fixed costs. Once those contributions add up to the fixed costs, you break even.
- Contribution margin per unit
- CM = Price - Variable cost per unit
- Break-even point in units
- BEP units = Fixed costs / CM
- Contribution margin ratio
- CM ratio = CM / Price
- Break-even point in sales
- BEP sales = Fixed costs / CM ratio
- Units for a target profit
- Units = (Fixed costs + Target profit) / CM
- Margin of safety
- MOS = (Expected sales - BEP sales) / Expected sales
The calculator rounds break-even units up to the next whole unit, because 1,499.4 units still leaves you short.
Worked example: a small bakery
A bakery pays 30,000 a month in rent, wages and equipment leases. A cake sells for 50 and its ingredients, packaging and card fees cost 30. Each cake therefore contributes 20 toward fixed costs, a contribution margin ratio of 40%.
Break-even is 30,000 / 20 = 1,500 cakes, or 1,500 × 50 = 75,000 in monthly sales. To earn 10,000 profit the bakery needs (30,000 + 10,000) / 20 = 2,000 cakes. If it expects to sell 2,400 cakes, the margin of safety is 900 cakes, or 37.5% of expected sales.
| Volume (cakes) | Revenue | Variable costs | Fixed costs | Profit |
|---|---|---|---|---|
| 1,000 | 50,000 | 30,000 | 30,000 | -10,000 |
| 1,500 | 75,000 | 45,000 | 30,000 | 0 |
| 2,000 | 100,000 | 60,000 | 30,000 | 10,000 |
| 2,400 | 120,000 | 72,000 | 30,000 | 18,000 |
Assumptions behind the result
- Price and variable cost per unit stay constant across the volume range (no volume discounts or overtime premiums).
- Fixed costs stay fixed within the period and the relevant range of activity.
- Everything produced is sold, so inventory does not change.
- One product, or a constant sales mix if you enter weighted average price and variable cost for several products.
- Amounts exclude VAT and other taxes collected for the government.
How do you find fixed and variable costs?
Fixed costs are the costs you pay even if you sell nothing this month; variable costs rise with each unit sold. Go through last month's income statement line by line and tag each expense.
Mixed costs, such as a phone plan with a base fee and usage charges, can be split with the high-low method: compare two months, divide the change in cost by the change in volume to get the variable rate, and treat the rest as fixed. In Ledgeriano you can tag each expense account as fixed, variable or mixed and get break-even from your actual books.
| Fixed costs | Variable costs |
|---|---|
| Rent and service charges | Raw materials and purchased goods |
| Salaried staff | Packaging and shipping per order |
| Insurance and licences | Card and marketplace fees |
| Depreciation of equipment | Sales commissions |
| Software subscriptions | Piece-rate labour |
What does the margin of safety tell you?
The margin of safety is the cushion between expected sales and break-even sales. A 37.5% margin means sales can fall by more than a third before the business makes a loss; a 5% margin means a slow month wipes out the profit.
Use it together with operating leverage: a business with high fixed costs and a high contribution margin earns profit quickly above break-even but loses money just as quickly below it.
Break-even with several products
With more than one product, compute a weighted average contribution margin using the expected sales mix, then divide fixed costs by it. If you sell 3 coffees for every cake, a coffee contributes 2.50 and a cake 20, the weighted margin per unit is (3 × 2.50 + 1 × 20) / 4 = 6.875.
Break-even then holds only while the mix stays the same. The management accounting guide walks through multi-product cost-volume-profit analysis in detail.
How to calculate a break-even point
- 1
Add up fixed costs
Total the costs for the period that do not change with volume: rent, salaries, insurance, depreciation and subscriptions.
- 2
Work out the variable cost per unit
Add materials, packaging, shipping, fees and commissions that each unit causes.
- 3
Compute the contribution margin
Subtract the variable cost per unit from the selling price.
- 4
Divide
Divide fixed costs by the contribution margin to get break-even units, and multiply by the price for break-even sales.
- 5
Test scenarios
Add a target profit or expected sales to see the volume you need and your margin of safety.
Frequently asked questions
What is a good break-even point?
There is no universal number. A healthy business reaches break-even well below its realistic sales, which shows up as a margin of safety of 20% or more. If break-even is close to your capacity or to the best month you have ever had, the plan is fragile.
Should break-even include my own salary?
Yes, if you need to draw a salary. Add the amount you need to live on to fixed costs; otherwise the business can break even on paper while you work for free.
Does break-even include VAT?
No. VAT you charge customers belongs to the tax authority, and input VAT you can reclaim is not a cost. Enter prices and costs net of VAT. Use the VAT calculator to strip VAT from gross prices first.
What is the difference between break-even and payback period?
Break-even is a volume per period at which profit is zero. Payback period is the time it takes for cumulative cash inflows to recover an initial investment. A shop can break even every month and still need two years to pay back its fit-out.
How do I lower my break-even point?
Raise the price, cut the variable cost per unit (better supplier terms, less waste) or reduce fixed costs. Raising the contribution margin usually has the biggest effect, because it reduces the volume needed for every unit of fixed cost.
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Get these numbers from your real books
Ledgeriano computes break-even, 19 financial ratios and budget variances from your posted entries, for every business you run.