How to Calculate Your Break-Even Point

The break-even point is the number of sales a business needs to cover its costs before it begins generating a profit. At the break-even point, total revenue equals total costs — nothing is lost, but nothing is earned yet either. Every sale beyond that point contributes to profit.

The core formula is:

Fixed Costs are costs that generally stay the same regardless of sales volume — rent, insurance, and certain salaries. The Contribution Margin Per Unit is what remains from each sale after the variable cost of that sale is subtracted. That remainder "contributes" toward covering fixed costs.

Break-Even Point Formula

First calculate the contribution margin per sale:

Then calculate break-even units:

Worked example: If you sell a service for $100, each sale costs $40 in variable costs, and your fixed costs are $6,000 per period, your contribution margin is $60. Dividing $6,000 by $60 gives a break-even point of 100 sales.

How to Calculate Break-Even Revenue

Break-even revenue is the total sales dollars required to break even. Once you know your break-even units, multiply by your selling price:

Using the example above, 100 sales at $100 each equals $10,000 in break-even revenue. That is the amount of sales needed to cover all costs before profit begins.

What Is Contribution Margin?

Contribution margin is the portion of each sale that helps cover fixed costs. It is the bridge between pricing, costs, and break-even analysis.

Contribution Margin Per Unit = Selling Price − Variable Cost. This is the dollar amount each sale contributes toward fixed costs.

Contribution Margin Percentage = Contribution Margin Per Unit ÷ Selling Price × 100. This expresses the contribution margin as a percentage of the selling price. A higher contribution margin means each sale contributes more toward covering costs and generating profit.

Fixed Costs vs. Variable Costs

Break-even analysis depends on separating costs into two categories.

The exact classification can depend on the business and its circumstances. Some costs have both fixed and variable components.

How to Calculate Sales Needed for a Target Profit

To find the sales required to reach a specific profit target, add the target profit to fixed costs before dividing by the contribution margin:

For example, with $6,000 in fixed costs, $60 contribution margin, and a $3,000 target profit: ($6,000 + $3,000) ÷ $60 = 150 sales. At $100 each, that is $15,000 in required revenue.

Break-Even Analysis Example

In plain English: each sale contributes $60 toward covering $6,000 of fixed costs. After 100 sales ($10,000 revenue), costs are covered. The next 50 sales ($5,000 revenue) generate the $3,000 target profit because each additional sale contributes $60.

How to Use the Break-Even Calculator

1. 1Enter your selling price per unit or sale.
2. 2Enter the variable cost per unit or sale.
3. 3Enter your total fixed costs (or itemize them in Detailed mode).
4. 4Optionally enter current sales volume and a target profit.
5. 5Review your break-even units, break-even revenue, and target-profit sales.

Why Break-Even Analysis Matters

Break-even analysis helps business owners understand the relationship between pricing, cost structure, and the sales volume required to remain viable. It can inform pricing decisions, cost evaluation, sales planning, target-profit scenarios, and operational choices. It does not predict actual sales or guarantee outcomes.

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