⚖️ Break-Even Calculator
How many units you have to sell before the business stops losing money. Fixed costs are paid whether you sell anything or not; each sale contributes what is left after its own variable cost. Break-even is simply the point where those contributions have covered the fixed costs.
The one number that tells you whether a business works
Break-even is the sales level at which a business stops losing money and has not yet started making any. It matters because it converts a vague worry — are we selling enough? — into a specific figure you can put on a wall. Below it you are funding the business out of savings; above it every additional sale is profit.
Break-even units = fixed costs / (price − variable cost)
The denominator is the contribution margin: what each sale leaves behind after paying for itself. It is the single most important number in the calculation, and the one most businesses cannot state from memory.
Fixed against variable, and why the split is harder than it looks
A fixed cost is one you pay at zero sales: rent, salaries, insurance, software subscriptions, the accountant. A variable cost is incurred by the sale itself: materials, packaging, payment processing, sales commission, shipping. Get the split wrong and the whole calculation is wrong.
Two categories catch people out. Payment processing fees feel like overhead but are purely variable — no sale, no fee. And staff are only fixed until they are not: a salaried employee is a fixed cost, the same person on an hourly contract scaled to demand is closer to variable. Businesses in trouble often discover their fixed costs were less fixed than they assumed, which is the one piece of good news in the situation.
Why contribution margin beats revenue as a target
| Price | Variable cost | Contribution | Break-even units |
|---|---|---|---|
| €45 | €18 | €27 (60%) | 167 |
| €45 | €27 | €18 (40%) | 250 |
| €45 | €36 | €9 (20%) | 500 |
| €36 | €18 | €18 (50%) | 250 |
| €55 | €18 | €37 (67%) | 122 |
Look at the first and third rows: the same price and the same fixed costs, but tripling the variable cost triples the volume needed. Revenue targets hide this completely, which is why a business can grow its turnover and move further from profitability at the same time.
Raising the price lifts the contribution by the full amount of the rise, because the variable cost does not move. On the table above, going from €45 to €55 cuts the break-even from 167 units to 122 — a 27% reduction in the volume you need, from a 22% price rise. Price is almost always the most powerful lever and the least used.
Margin of safety
The margin of safety is how far sales can fall before you are losing money again, as a percentage of current sales. At 220 units a month against a break-even of 167, the margin is 24%: a quarter of your sales could disappear before the business is underwater. Under about 20% is uncomfortable, because one lost client or one quiet month puts you there.
This is the number to watch rather than profit, because it tells you how much room you have. Two businesses making the same profit can have very different exposure depending on how much of their cost base is fixed.
What the model leaves out
It assumes a constant price, which ignores discounts and volume deals; a constant variable cost, which ignores bulk purchasing; and that fixed costs stay fixed, which stops being true the moment you need a second van or a bigger unit. Those step changes matter: the break-even point jumps the day a fixed cost increases, and a business that was comfortably profitable can be back below the line.
It also says nothing about cash timing. You can be above break-even on paper and still unable to pay a supplier, because the invoice is unpaid — which is its own problem and the reason the invoice generator includes payment terms. For pricing itself, the margin calculator works backwards from the margin you need.
A worked example
A workshop has €4,500 of fixed costs a month. Each item sells for €45 and costs €18 in materials and fees, so the contribution is €27 and the margin 60%. Break-even is 167 units a month, about 7.6 a working day, or €7,500 of revenue. Current sales are 220 units, giving €1,440 of profit and a 24% margin of safety. To reach €2,000 of profit they need 241 units — 21 more a month, which is one extra a working day rather than a new strategy.
The natural follow-ups are the margin calculator, for what this figure feeds into, and the roi calculator, for the closely related case.
Frequently Asked Questions (FAQs)
How do I calculate the break-even point?
Divide your fixed costs by the contribution per unit, which is the selling price minus the variable cost per unit. With €4,500 of fixed costs and €27 of contribution, break-even is 167 units.
What is contribution margin?
What each sale leaves after paying its own variable cost. At a €45 price and €18 of variable cost, each sale contributes €27 towards fixed costs, a margin of 60%. Once fixed costs are covered, that €27 becomes profit.
What counts as a fixed cost?
Anything you pay at zero sales: rent, salaries, insurance, subscriptions, accountancy. Variable costs are caused by the sale itself — materials, packaging, payment fees, commission, shipping. Payment processing fees are variable even though they feel like overhead.
What if the contribution margin is negative?
There is no break-even point. Every sale increases the loss, so no volume target helps. Either the price has to rise or the variable cost has to fall before volume means anything at all.
What is a good margin of safety?
Above 20% of current sales gives reasonable room. Below that, one lost client or one slow month puts the business into a loss, which usually means looking at fixed costs rather than chasing more volume.
Does raising prices or cutting costs help more?
Usually price, because the whole increase goes to contribution while variable costs stay put. Going from €45 to €55 on the example above cuts break-even from 167 units to 122 — more than a cost reduction of the same size would achieve.
Can I use this for a service business?
Yes, with hours or projects as the unit. Fixed costs are the overhead you carry regardless, and the variable cost is whatever a delivered hour actually costs you, including subcontractors and anything billed through.