How to Calculate Your Break-Even Point (With Examples)

The formula in one line

Break-Even Units = Fixed Costs / (Selling Price − Variable Cost Per Unit)

The denominator is called the "contribution margin" —
the profit each unit contributes toward covering fixed costs.

Step 1: List your fixed costs

Fixed costs don't change with how many units you sell. List the monthly amount for each, then sum to get total monthly fixed cost. Typical items:

• Rent or mortgage on premises
• Salaries (not commissions)
• Insurance, licences, subscriptions
• Software and SaaS subscriptions
• Loan interest payments
• Accountant and legal retainers

Step 2: Calculate variable cost per unit

Variable costs change with every unit you sell. Per-unit items:

• Raw materials or product cost
• Direct labour to make the unit
• Packaging and shipping out
• Sales commission per unit
• Platform fees (Amazon, Etsy, Stripe)
• Payment processing fees

Step 3: Calculate contribution margin per unit

Contribution Margin = Selling Price − Variable Cost

Example: $40 sell price − $15 variable cost = $25 contribution

Each unit you sell contributes $25 toward covering fixed costs.

Step 4: Divide and round up

Fixed Costs $10,000 / month
Contribution Margin $25 per unit
Break-Even Units = 10,000 / 25 = 400 units / month

Always round UP. You don't break even at 399.

Step 5: Translate to revenue and timeframe

400 units × $40 = $16,000/month break-even revenue. Divide $16,000 by 30 days = $533/day or $22/hour during opening hours. Now you know exactly what daily volume to watch for.

Common mistakes

• Forgetting your own salary. Founders often leave themselves out of fixed costs. If you need to pay yourself $4,000/month, add it.
• Treating step costs as fixed. Some costs are "step-fixed" — they jump up at certain volumes (one more shift, second warehouse). Calculate break-even within each step.
• Forgetting taxes. Simple break-even ignores tax, which is fine because tax only kicks in above zero profit. But your "target profit" calculation needs the pre-tax figure.
• Ignoring seasonality. Monthly average smooths over a 3-month peak and 9 quiet months. Calculate seasonally if your business is seasonal.
• Per-unit cost confusion. Bulk discounts mean variable cost per unit drops at volume. Use your most likely scenario, not best case.

Targeting a specific profit

Once you know break-even, target profit is easy:

Units for Target Profit = (Fixed Costs + Target Profit) / Contribution Margin

Example: $10k fixed + $3k profit target = $13k needed
  $13,000 / $25 = 520 units needed

When to recalculate

Break-even isn't a one-and-done number. Recalculate whenever:

• You change your selling price
• Supplier costs rise or fall by more than 5%
• You hire or fire (changes fixed costs significantly)
• You move premises
• You add a major recurring expense

Run yours now

Plug your numbers into the Break-Even Calculator — it also produces a chart showing your revenue and cost lines crossing at the break-even point, which is useful for investor decks and bank loan applications. If your variable cost is hard to pin down, the Cost Per Unit Calculator helps you split fixed from variable costs at different volumes.

Bottom line

• Break-even = Fixed Costs ÷ Contribution Margin.
• Always round up to whole units.
• Include your own salary in fixed costs.
• Recalculate after any significant price, cost, or staffing change.