How to Calculate Your Break-Even Point (With Real Examples)
Short answer
Break-even units = fixed costs Γ· (price per unit β variable cost per unit). The bracket is your contribution margin: what each sale leaves over to pay the bills. Example: $600 of monthly fixed costs, an $18 product that costs $7.02 to make and sell β $10.98 margin β 600 Γ· 10.98 = 54.6, so you need 55 sales a month (about $990 in revenue) before you make a profit.
Anyone who has sold anything, from cookies at a weekend market to a digital course, eventually asks the same question: how many do I have to sell before this actually pays? That number is the break-even point. Below the line you are losing money; above it every extra sale is profit. Working it out takes five minutes, and it is one of the most useful numbers a small business or side project can have. This guide explains the formula in plain language, walks through a realistic example, and shows how price changes and discounts move the line.
The break-even formula in plain words
You only need three numbers:
- Fixed costs: bills that stay the same whether you sell one unit or a thousand in a month. Rent, a market stall fee, software subscriptions, insurance, a website.
- Price per unit: what the customer pays you for one item or one job, before sales tax.
- Variable cost per unit: costs that go up with every sale. Ingredients or materials, packaging, shipping, and card or platform fees.
Price minus variable cost is the contribution margin. It is the slice of every sale that is left to "contribute" towards fixed costs and, once those are covered, to profit. Accounting textbooks such as OpenStax's Principles of Managerial Accounting build the whole cost-volume-profit method on this idea.
| What you want | Formula |
|---|---|
| Contribution margin per unit | Price β variable cost |
| Break-even units | Fixed costs Γ· contribution margin |
| Break-even revenue | Break-even units Γ price |
| Units for a profit target | (Fixed costs + target profit) Γ· contribution margin |
| Contribution margin ratio | Contribution margin Γ· price |
Always round break-even units up. You cannot sell 54.6 boxes, and 54 would leave you slightly short.
Worked example: a small home bakery
Imagine Priya sells boxes of 12 cookies at a weekend market and through local orders. Her monthly fixed costs are $350 for shared commercial kitchen time, $120 in market fees and $130 for her website, card reader plan and insurance: $600 a month in total.
She charges $18 a box. Each box costs her $4.80 in ingredients and $1.40 for the box and label. Her card processor charges 2.9% plus 30 cents per sale, which is about $0.82 on $18. So her variable cost is $7.02 per box. (Your fees may differ, so check your own provider's rates.)
- Contribution margin: $18 β $7.02 = $10.98 per box.
- Break-even units: $600 Γ· $10.98 = 54.6, rounded up to 55 boxes a month.
- Break-even revenue: 55 Γ $18 = $990.
- Contribution margin ratio: $10.98 Γ· $18 β 61%. In other words, about 61 cents of every dollar she takes in goes towards her fixed costs.
Want to pay herself $500 a month on top? Add it to the fixed costs: ($600 + $500) Γ· $10.98 = 100.2, so 101 boxes, or $1,818 in sales. Put these numbers into our break-even calculator (fixed costs 600, price 18, variable cost 7.02, profit target 500) and it shows the same 55 and 101.
What happens when you change the price or run a sale
This is where break-even really earns its keep. Small changes to price or cost move the line a lot more than most people expect, because they act on the margin, not the price. Here is Priya's break-even under a few common scenarios (card fee recalculated each time):
| Scenario | Price | Variable cost | Margin per box | Break-even boxes |
|---|---|---|---|---|
| Starting point | $18.00 | $7.02 | $10.98 | 55 |
| Raise price by $2 | $20.00 | $7.08 | $12.92 | 47 |
| 20% off sale | $14.40 | $6.92 | $7.48 | 81 |
| Ingredients up $1 | $18.00 | $8.02 | $9.98 | 61 |
| Fixed costs up $200 | $18.00 | $7.02 | $10.98 | 73 |
The 20% sale is the eye-opener. The price drops by a fifth, but the margin drops by almost a third, so Priya needs 81 boxes instead of 55, about 47% more, just to stand still. A discount can still be a smart move if it brings in new regular customers, but it is worth knowing the real cost before you print the sign. Our discount calculator gives the sale price, and the percentage calculator shows the percentage change between the two break-even figures.
Margin of safety and payback time
Two follow-up numbers make break-even much more practical:
- Margin of safety = (expected sales β break-even sales) Γ· expected sales. If Priya expects to sell about 80 boxes a month, her margin of safety is (80 β 55) Γ· 80 β 31%. Sales could fall by almost a third before she starts losing money.
- Payback time for start-up costs. One-off costs, such as a stand mixer, display trays or a food handler course, are not monthly fixed costs, so keep them separate. If she spent $1,500 getting started and makes 80 Γ $10.98 β $600 = $278.40 profit a month, the start-up money comes back in about 1,500 Γ· 278.40 β 5.4 months, so roughly six months.
Break-even when you sell more than one product
Most businesses sell a mix. The simple approach is a weighted average contribution margin. Say a coffee cart sells coffee at $4 (variable cost $1.20, so a $2.80 margin) and pastries at $3.50 (variable cost $1.50, so a $2.00 margin). If about 70% of items sold are coffees and 30% pastries, the weighted margin is 0.7 Γ $2.80 + 0.3 Γ $2.00 = $2.56 per item.
With $2,000 of monthly fixed costs, break-even is 2,000 Γ· 2.56 = 781.25, so 782 items a month: roughly 547 coffees and 235 pastries. If the cart trades 26 days a month, that is about 30 items a day, which is a target you can check against a real Saturday. If the mix shifts towards lower-margin items, the break-even goes up, so recheck it every few months.
Common mistakes to avoid
- Forgetting small variable costs. Card fees, marketplace commission, delivery bags and free samples add up. Leaving out even 50 cents per unit can hide several extra sales a month.
- Mixing up margin and markup. A 100% markup is only a 50% margin. Our guide to profit margin vs markup explains the difference, and the profit margin calculator converts between them.
- Not paying yourself. If your own time is the main input, add a modest wage to fixed costs or as a profit target. Otherwise "break-even" can quietly mean working for free.
- Treating it as a forecast. Break-even tells you what you need to sell, not what you will sell. Compare it with real demand: past sales, market foot traffic, or pre-orders.
- Ignoring tax. Sales tax you collect is not your revenue, so use pre-tax prices. Income tax comes out of profit, so a separate set-aside for it is wise.
When break-even is not enough
Break-even assumes a straight line: the same price and the same cost per unit at every volume. Real life bends that line. Suppliers give bulk discounts, you may need a second kitchen shift at higher volumes, and seasonal demand swings. Use the formula as a quick test, then repeat it for the volumes you actually expect. For bigger decisions such as a lease, a loan or hiring, the U.S. Small Business Administration and Canada's BDC both publish free planning guides, and an accountant can help you build a fuller cash-flow forecast. If you are also budgeting at home, our monthly budget guide and percentage basics pair well with this one.
VSH take: the most valuable minute in this whole exercise is the "what if" table. Before you discount, before you sign a bigger stall fee, run the numbers once. If a change pushes your break-even past what you have ever sold in a month, think twice.
General information only, not financial, tax or accounting advice. Example figures are illustrative. Updated 20 October 2026.
Frequently asked questions
What is the formula for break-even point?
Break-even units = fixed costs Γ· (price per unit β variable cost per unit). Multiply the result by the price to get break-even revenue. Round units up to the next whole number.
What is a contribution margin?
It is the selling price minus the variable cost of one unit. It shows how much each sale contributes towards fixed costs and then profit. Divide it by the price to get the contribution margin ratio.
Should start-up costs be included in fixed costs?
Usually not. Keep monthly fixed costs (rent, subscriptions) separate from one-off start-up costs (equipment, permits). Work out monthly break-even first, then see how many months of profit it takes to pay back the start-up money.
How does a discount affect break-even?
A discount cuts your margin by the full discount amount, so break-even rises faster than the percentage off suggests. In our example a 20% sale raised break-even from 55 to 81 units, about 47% more.
Can I calculate break-even in revenue instead of units?
Yes. Divide fixed costs by the contribution margin ratio. With $600 of fixed costs and a 61% ratio, break-even revenue is about $984 (the unit method gives $990 because units are rounded up).
Sources
- U.S. Small Business Administration: Break-even point calculator
- U.S. Small Business Administration: Calculate your startup costs
- OpenStax, Principles of Managerial Accounting: Contribution margin
- OpenStax, Principles of Managerial Accounting: Break-even sensitivity analysis
- BDC: Break-even point (glossary)
