Break-Even Calculator
Break-Even Units
—
Break-Even Revenue
—
Contribution Margin
—
Margin of Safety
—
Understanding Break-Even Analysis
Break-even analysis determines the point at which total revenue equals total costs, meaning your business neither makes a profit nor incurs a loss. The formula is: Break-Even Units = Fixed Costs / (Selling Price - Variable Cost per Unit). The denominator is called the contribution margin — the amount each unit sold contributes toward covering fixed costs.
Fixed costs are expenses that do not change with production volume, such as rent, insurance, and salaries. Variable costs change with each unit produced, like materials, packaging, and shipping. Understanding these cost structures is essential for pricing decisions and financial planning.
The margin of safety shows how much sales can drop before you start losing money. A higher margin of safety means your business is more resilient to downturns. This metric is particularly useful when evaluating new products, pricing changes, or expansion decisions.
Frequently Asked Questions
What is the break-even point?
The break-even point is the level of sales at which total revenue equals total costs. At this point, profit is zero — you are not making or losing money.
How do you calculate break-even in units?
Break-Even Units = Fixed Costs / (Selling Price per Unit - Variable Cost per Unit). For example, with $50,000 fixed costs, $40 selling price, and $15 variable cost: 50,000 / (40-15) = 2,000 units.
What is contribution margin?
Contribution margin is the selling price minus variable cost per unit. It represents the amount each sale contributes to covering fixed costs and eventually generating profit.
What is margin of safety?
Margin of safety is the difference between actual (or projected) sales and break-even sales, expressed as a percentage. It shows how much sales can decline before you reach the break-even point.