Break-Even Calculator

How to use Break-Even Calculator

1. Enter total fixed costs for the period, such as rent, salaries and insurance.
2. Enter the selling price per unit and the variable cost per unit.
3. Optionally enter expected unit sales and a target profit.
4. Read the break-even units, revenue, contribution margin and margin of safety, and check the chart where the two lines cross.

How break-even analysis works

Costs fall into two groups. Fixed costs, such as rent, salaries and software subscriptions, stay the same however much you sell in the period. Variable costs, such as materials, packaging and card fees, rise with each unit. Every sale contributes its price minus its variable cost toward fixed costs. Once the total contribution equals fixed costs you have reached break-even, and each additional unit adds profit.

Formulas: contribution margin per unit = price - variable cost. Break-even units = fixed costs / contribution margin. Break-even revenue = break-even units x price, which also equals fixed costs / contribution margin ratio. Units for a target profit = (fixed costs + target profit) / contribution margin.

A worked example

A small business has fixed costs of 1,20,000 a month, sells a product at 50 and spends 30 on variable costs. The contribution margin is 20, or 40 per cent of the price. Break-even units are 1,20,000 / 20 = 6,000 and break-even revenue is 6,000 x 50 = 3,00,000. If the plan is to sell 8,000 units, the margin of safety is 2,000 units, which is 25 per cent of expected sales or 1,00,000 in revenue, and projected profit is 8,000 x 20 - 1,20,000 = 40,000. Adding a target profit of 20,000 raises the required volume to 7,000 units.

Using it and its limits

Use the tool to test price changes, supplier quotes or a new hire before you commit. A higher price or lower variable cost reduces break-even volume, and extra fixed spending raises it. Remember that the model assumes a constant price and variable cost, fixed costs that do not step up, and that everything produced is sold. Real businesses discount, have several products and face stepped costs, so treat the result as a first estimate and repeat the calculation per product line.

The calculation runs in your browser and nothing is saved. The figures in the form are editable examples. This is not financial advice.

• Separate fixed and variable costs honestly.
• Re-run the calculation whenever prices or costs change.
• Use the chart to explain the plan to partners.

Why use this break-even calculator tool

• Units and revenue. Shows the exact break-even quantity, the whole units to sell, and the revenue at that point.
• Contribution margin. Per-unit margin and the percentage of each sale that is left after variable costs.
• Margin of safety. Compares expected sales with break-even in units, percent and revenue, with projected profit.
• Chart. A simple graph of revenue, total cost and fixed cost against units sold.

Frequently asked questions

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