Calculate the break-even point in units and sales revenue from fixed costs, price and variable cost, plus the volume needed for a target profit.
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Each unit contributes $10.00 toward fixed costs, so you need 5,000 units ($125,000.00 of sales) before the business makes a profit.
| Volume vs break-even | Units | Revenue | Total cost | Profit |
|---|---|---|---|---|
| 50% | 2,500 | $62,500.00 | $87,500.00 | −$25,000.00 |
| 75% | 3,750 | $93,750.00 | $106,250.00 | −$12,500.00 |
| 100% | 5,000 | $125,000.00 | $125,000.00 | $0.00 |
| 125% | 6,250 | $156,250.00 | $143,750.00 | $12,500.00 |
| 150% | 7,500 | $187,500.00 | $162,500.00 | $25,000.00 |
| 200% | 10,000 | $250,000.00 | $200,000.00 | $50,000.00 |
Rounded up to whole units: selling one unit fewer would leave a loss.
The break-even point is the sales volume at which revenue equals total cost. Each unit sold contributes its price minus its variable cost, the contribution margin, toward fixed costs, so the break-even volume is Q = F ÷ (p − v). Break-even revenue is the fixed costs divided by the contribution margin ratio, (p − v) ÷ p.
With the defaults, fixed costs of 50,000, a price of 25 and a variable cost of 15 per unit, each unit contributes 10, a 40% margin ratio. Break-even comes at 5,000 units, or 125,000 of revenue, and a target profit of 20,000 would take 7,000 units.
The model is linear: price and variable cost per unit stay constant, and fixed costs do not step up as volume grows. Break-even units are rounded up, because one unit fewer would leave a small loss.
Divide fixed costs by the contribution margin per unit: break-even units = fixed costs ÷ (price − variable cost). At 50,000 of fixed costs, a price of 25 and a variable cost of 15, each unit contributes 10, so break-even is 5,000 units. That holds while price and cost per unit stay constant.
The contribution margin is what each sale leaves after its variable costs: 25 − 15 = 10. Until fixed costs are covered, that margin only shrinks the loss; past break-even, each extra unit adds 10 of profit.
As a share of price, the contribution margin ratio is 10 ÷ 25 = 40%. Break-even revenue is fixed costs ÷ contribution margin ratio: 50,000 ÷ 0.40 = 125,000, the same as 5,000 units × 25. The SBA's business-planning guidance uses the same two formulas.
The revenue form is useful when a business sells many products with a similar margin ratio, because it needs no unit count.
With fixed costs of 10,000, a price of 7 and a variable cost of 4, the exact break-even is 10,000 ÷ 3 = 3,333.33 units. Selling 3,333 units leaves a loss of 1, and selling 3,334 earns a profit of 2, so the whole-unit answer is 3,334.
The revenue threshold, 10,000 ÷ (3 ÷ 7) = 23,333.33, is the continuous figure. The 3,334 units you actually sell bring in 23,338.
These rows keep fixed costs at 50,000 and variable cost at 15:
| Selling price | Whole break-even units | Exact revenue threshold |
|---|---|---|
| 23 | 6250 | 143750.00 |
| 25 | 5000 | 125000.00 |
| 27 | 4167 | 112500.00 |
Cutting the price from 25 to 23, 8% less, raises break-even by 25%, because the margin falls from 10 to 8. Raising it to 27 lifts the margin to 12: 50,000 ÷ 12 = 4,166.67, so 4,167 units.
Costs work the same way. A variable cost of 16 instead of 15 pushes break-even to 5,556 units.
Add the profit you want to the fixed costs: units = (fixed costs + target profit) ÷ contribution margin. Earning 20,000 above 50,000 of fixed costs takes 70,000 ÷ 10 = 7,000 units, or 175,000 of revenue at a price of 25.
The margin of safety is how much sales can fall before you reach break-even. If you expect to sell 6,000 units, it is 6,000 − 5,000 = 1,000 units, or 1,000 ÷ 6,000 = 16.7% of sales, and those 1,000 units carry the whole 10,000 profit.
For investments with cash flows spread over time, use the NPV and IRR calculator. To value the whole business, use the DCF valuation calculator, and to spread an equipment purchase over its life, the depreciation calculator.
Checked against: 50000 / (25 − 15) = 5000 units; 5000 × 25 = 125000
Checked against: 10000 / 3 = 3333.33…, ceiling 3334; revenue 10000 / (3/7) = 23333.33
Checked against: 0 / 4.5 = 0 — every unit sold is profit from the first
Checked against: (50000 + 20000) / 10 = 7000 units; × 25 = 175000
Divide fixed costs by the contribution margin per unit, price minus variable cost. With fixed costs of 50,000, a price of 25 and a variable cost of 15, break-even is 50,000 ÷ 10 = 5,000 units. When the division is not whole, round up: 10,000 ÷ (7 − 4) = 3,333.33, so 3,334 units are needed.
The contribution margin is what each sale leaves after its variable costs, available to cover fixed costs and then profit: price − variable cost per unit. At a price of 25 and a variable cost of 15 it is 10 a unit. As a share of price, the contribution margin ratio, it is 10 ÷ 25 = 40%.
Divide fixed costs by the contribution margin ratio. With 50,000 of fixed costs and a 40% ratio, break-even revenue is 50,000 ÷ 0.40 = 125,000, the same as 5,000 units × 25. The revenue form is useful when a business sells many products with a similar margin ratio.
Add the target profit to the fixed costs and divide by the contribution margin: (F + target) ÷ (p − v). Earning 20,000 on top of 50,000 of fixed costs at a margin of 10 a unit takes 70,000 ÷ 10 = 7,000 units, or 175,000 of revenue at a price of 25.
A small price change moves break-even a lot, because it changes the margin on every unit. With 50,000 of fixed costs and a variable cost of 15, raising the price from 25 to 27 lifts the margin from 10 to 12 and cuts break-even from 5,000 to 4,167 units; cutting the price to 23 raises it to 6,250 units.
For planning only. Lenders, tax authorities and markets apply their own rounding, fees and rules; confirm figures with them before you commit.
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