Break-Even
Point where revenue equals cost.
What does Break-Even mean?
The break-even point is the number of units you need to sell (or the revenue you need to earn) for total revenue to equal total costs — meaning zero profit and zero loss. It is one of the most fundamental concepts in business planning, helping entrepreneurs and managers understand the minimum sales target required before a product or service becomes profitable.
How to calculate Break-Even
Break-even is calculated using: Break-Even Units = Fixed Costs / (Price per Unit − Variable Cost per Unit). The difference between price and variable cost is called the contribution margin — it represents how much each sale contributes toward covering fixed costs. For example, with $10,000 in fixed costs, a $50 price, and $20 variable cost, you need 10000 / (50 − 20) = 334 units to break even, generating $16,700 in revenue.
FAQ
Fixed costs remain constant regardless of how many units you sell — examples include rent, salaries, insurance, and equipment leases. Variable costs change with each unit produced — examples include raw materials, packaging, shipping, and sales commissions.
If the variable cost per unit is higher than the selling price, the contribution margin is negative, meaning you lose money on every sale. In this situation, there is no break-even point — the business model needs restructuring by either raising prices or reducing variable costs.
- Reduce fixed costs — negotiate rent, cut overhead, eliminate unnecessary subscriptions.
- Increase the selling price — raises the contribution margin per unit.
- Reduce variable costs per unit — source cheaper materials, improve production efficiency.
Basic break-even analysis does not include taxes. It calculates the point of zero pre-tax profit. For after-tax break-even, you would need to adjust the target profit to account for the tax rate, which makes the required sales volume higher.
Yes. For service businesses, the "unit" can be an hour of service, a project, or a client. Fixed costs might include office rent and software subscriptions, while variable costs could include contractor fees or materials per job.
Related calculators
- Profit Margin— Profit as percentage of revenue.
- ROI— Return relative to investment cost.
- Contribution Margin— Revenue minus variable cost.
- Burn Rate— Monthly spending rate.