Break-even is where revenue first covers costs. Enter fixed costs, price per unit and variable cost per unit to see how many sales you need.
The contribution margin — price minus variable cost — is what each sale contributes toward fixed costs. Small price increases often cut the break-even volume more than large cost savings.
Past break-even, each additional sale drops its full contribution margin to profit, which is why scale changes everything.
Fixed and variable is a split the business has to make honestly. Rent and salaries are fixed only until volume forces another hire or a second location, at which point the break-even resets upward — a step, not a line. Costs described as fixed usually hold across a range, and the range is worth naming out loud.
The formula also assumes every unit sells at the stated price. Discounts, refunds and unpaid invoices all reduce the contribution margin actually collected, so a break-even computed on list price is the optimistic case. Running it again at the average price genuinely achieved is normally the more useful number.
Break-even in units and break-even in time are different questions with different answers. A business selling 200 units a month against a 2,400-unit break-even is twelve months away in volume terms and may be much further away in cash terms, because fixed costs are paid monthly while revenue arrives on customer payment terms.
Frequently asked questions
What is the break-even formula?
Fixed costs divided by the contribution margin: units = fixed costs ÷ (price − variable cost per unit). Below that volume you lose money, above it each sale adds profit.
What is a contribution margin?
Price minus variable cost per unit — what each sale contributes toward covering fixed costs, and pure profit once those are covered.
How can I lower my break-even point?
Raise the price, cut variable costs, or reduce fixed costs. Small price increases are usually the strongest lever, because they flow entirely into the contribution margin.