Your break-even point is your fixed costs divided by the contribution margin on each sale — price minus variable cost — rounded up to a whole unit. At $8,400 of monthly fixed costs, a $65 price, and a $40 variable cost, each sale contributes $25, and break-even is 336 sales a month. The Break-Even Calculator runs it on your own figures, including a target-profit version; this guide explains the pieces the division is built from.
The formula, in one line
Break-even units = fixed costs ÷ (price per unit − variable cost per unit). The denominator has its own name — the contribution margin — because it is what each sale contributes toward the fixed pile. Divide the pile by the contribution and you get the number of contributions needed to cover it. Two companion figures fall out of the same arithmetic: the margin ratio (margin ÷ price, the share of each revenue dollar that reaches the fixed pile), and break-even revenue (break-even units × price). The assumptions are the ones the formula states by its shape: the price and the per-unit variable cost stay constant, and every unit sells at that price. Mixed product lines, discounts, and costs that step up with volume all move the real figure.
Worked example — $8,400 fixed, a $65 price, a $40 variable cost
Marta sells a packaged kit for $65.00. Each kit costs her $40.00 in materials, packaging, and per-sale fees, and her fixed costs — rent, software, insurance, and a salary she counts for herself — come to $8,400 a month:
- Contribution margin: $65.00 − $40.00 = $25.00 per kit
- Margin ratio: $25.00 ÷ $65.00 × 100 = 38.46%
- Break-even units: $8,400 ÷ $25.00 = 336 kits (the quotient is exact, so no rounding up is needed)
- Break-even revenue: 336 × $65.00 = $21,840.00
Check it by hand: at 336 kits the business takes in $21,840, pays 336 × $40 = $13,440 in variable costs and $8,400 in fixed costs, and lands on exactly $0 of profit. Kit 337 is the first profitable sale, adding one full $25 margin. The same stacking answers a target-profit question: to clear the fixed pile and $5,000 of profit takes ($8,400 + $5,000) ÷ $25 = 536 kits, or $34,840 of revenue.
Try it with your own numbers
This mini-calculator is prefilled with the worked example above and runs the same formula as the full tool, on the three inputs the formula needs.
Result
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| Contribution margin per unit | — |
| Contribution margin ratio | — |
| Exact break-even quotient | — |
| Break-even revenue | — |
Open the full calculator — the Break-Even Calculator runs the complete version of this calculation.
Sorting costs: the split the whole calculation stands on
Every cost goes in exactly one of the two piles, and the test is behaviour, not the cost's name. Fixed costs arrive whether anything sells or not: rent, insurance, software subscriptions, base salaries, licences. Variable costs happen only when a unit sells: the materials in it, its packaging, a marketplace or card fee taken per sale, shipping absorbed by the seller, direct labour paid per job. Ask of each cost: if sales doubled next month, would this roughly double? Then it is variable. If it would stay the same, it is fixed. Borderline cases follow the same test — hourly help hired only for busy weeks behaves as a variable cost; a salaried employee is fixed even though they make the product. Mis-sorting does not just blur the answer; it changes the margin, and the margin is the divisor, so a small sorting error moves the break-even point a long way.
When there is no break-even point
If the price is equal to the variable cost, each sale contributes $0.00 and the fixed pile is never touched. If the price is below it, each sale loses money before fixed costs are even counted, and volume makes the loss bigger rather than smaller. In both cases the correct answer is not a very large number of units — it is that these inputs never break even, which is what the calculator reports instead of dividing. The fix has to come first: raise the price, cut the per-unit cost, or both, until a positive margin exists for volume to stack.
Margin, markup, and the number underneath this one
The contribution margin is a first cousin of the gross margin: both start from price minus the direct cost of one sale. Where they part is what the percentage is compared against and what happens next — gross margin feeds pricing decisions, while the contribution margin feeds this volume question, and the same $25 can be stated as a 38.46% margin ratio here or converted to a markup on cost elsewhere. Keeping the denominators straight is the discipline the margin vs markup guide works through, and the Profit Margin Calculator shows both percentages side by side on the same dollars. One last boundary: break-even is a gross concept. It says nothing about taxes on the profit above it — a bonus or a strong month past break-even is taxed on its own rules, which is the side the Bonus Tax Calculator estimates.
For educational and planning purposes only — not professional advice. This guide explains the standard break-even formula with a simplified example (one product, constant price and per-unit cost, every unit sold). It is not professional financial or tax advice, and it does not set a price or a sales target for any real business. Verify your figures against your own cost records, and review significant pricing decisions with a qualified accounting professional.