How to Calculate Your Break-Even Point

The formula

contribution margin = price − variable cost
break-even units = fixed costs ÷ contribution margin
break-even revenue = fixed costs ÷ contribution margin ratio

Worked example

A small product business: $4,000 a month in fixed costs, selling at $25 with $9 of variable cost per unit.

Step	Working	Result
Contribution margin	$25 − $9	$16 per unit
Contribution ratio	16 ÷ 25	64%
Break-even units	4,000 ÷ 16	250 units
Break-even revenue	4,000 ÷ 0.64	$6,250

Unit 250 pays off the last of the rent. Unit 251 delivers $16 of profit, and so does every unit after it — which is why businesses just past break-even see profit accelerate so sharply.

Monthly profit by units sold

150 units−$1,600

250 units$0

350 units+$1,600

500 units+$4,000

Model your own costs and price.Break-even calculator →

Which lever moves it most

Starting from 250 units, here is what each single change does:

Change	New break-even	Improvement
Raise price $25 → $28	211 units	−16%
Cut variable cost $9 → $7	223 units	−11%
Cut fixed costs $4,000 → $3,500	219 units	−12%
Add $1,000 of fixed costs	313 units	+25%

Price is usually the strongest lever, because it raises contribution without touching cost. That last row is the one to respect: every new fixed commitment — a hire, a bigger unit, a software contract — permanently raises the bar you must clear each month.

Before any hire or lease, run it in reverse: divide the new monthly cost by your contribution margin. A $1,000/month commitment at $16 contribution needs 63 extra units every month, forever. If that number feels unreachable, the answer is already clear.

Service businesses

Replace units with billable hours. A consultancy with $6,000 of fixed costs billing $85/hour with $15 of variable cost per hour has a $70 contribution margin, so break-even is 86 billable hours a month — about 20 a week. If the team is only billable 60% of the time, that requires roughly 33 working hours a week, which is where many service businesses discover their real constraint.

Break-even assumes a constant price and cost per unit. Volume discounts, seasonal pricing and mixed product lines all break that assumption. With multiple products, use the weighted average contribution margin across your actual sales mix.

Beyond break-even

Two extensions worth having:

Target profit. Add the profit you want to fixed costs. For $2,000 of monthly profit: (4,000 + 2,000) ÷ 16 = 375 units.
Margin of safety. How far sales can fall before you are losing money. Selling 400 units against a 250 break-even gives a 37.5% margin of safety.

The contribution margin at the heart of all this is the same figure people mangle when confusing margin with markup — get that wrong and every break-even number built on it is wrong too.

Run your own numbers

Break-even Profit margin ROI

FAQ

What is the break-even formula?

Break-even units = fixed costs ÷ contribution margin per unit, where contribution margin is selling price minus variable cost per unit. With $4,000 of fixed costs, a $25 price and $9 variable cost, that is 4,000 ÷ 16 = 250 units.

What is contribution margin?

The amount each sale contributes toward covering fixed costs, calculated as price minus variable cost. Once fixed costs are covered, every further unit's contribution margin becomes profit.

What counts as a fixed versus variable cost?

Fixed costs do not change with sales volume: rent, salaries, software, insurance. Variable costs occur per unit sold: materials, packaging, shipping, payment processing fees. Some costs are mixed — a phone plan with a base fee plus usage — and should be split.

How do I calculate break-even in revenue rather than units?

Divide fixed costs by the contribution margin ratio. A $16 contribution on a $25 price is a 64% ratio, so $4,000 ÷ 0.64 = $6,250 of revenue. This is the more useful form for service businesses with no discrete unit.

Which lever lowers break-even fastest?

Usually price, because it raises contribution margin without raising costs. Going from $25 to $28 in the example above drops break-even from 250 to 211 units — a 16% improvement from a 12% price rise. But price changes affect demand, which the formula does not model.

Sources

Primary references used for the figures and rules on this page.

Calculate your startup costs — U.S. Small Business Administration
Write your business plan — U.S. Small Business Administration