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Break-Even Calculator: Units and Revenue
Find how many units you must sell, and how much revenue that represents, to cover your fixed and variable costs. Add a target profit to see the volume needed to earn it.
The break-even formulas
Break-even is the sales volume at which total revenue equals total cost, so profit is zero. Each unit sold contributes its price minus its variable cost towards covering fixed costs. That amount is the contribution margin.
Contribution margin per unit = price − variable costBreak-even units = fixed costs ÷ contribution margin per unitBreak-even revenue = break-even units × price, or equivalently fixed costs ÷ contribution margin ratioUnits for a target profit = (fixed costs + target profit) ÷ contribution margin per unit
In the worked example the contribution margin is 40 − 22 = 18 per unit. Break-even is 12,000 ÷ 18 = 666.7 units, so 667 whole units.
Contribution margin explained
Contribution margin is what remains from a sale after the costs that moved with that sale. It does not yet account for rent or salaries. The ratio form, contribution margin ÷ price, tells you how many cents of each unit of revenue are available to pay fixed costs and then become profit. A higher ratio means break-even is reached with less revenue, and each extra sale beyond break-even adds profit more quickly.
Separating fixed and variable costs is the hardest part in practice. Some costs are mixed, such as a phone plan with a base fee and per-minute charges. Split them into a fixed part and a per-unit part before using the calculator.
Common mistakes and limits
- Putting fixed costs in the variable field. This understates break-even volume badly.
- Mixing time periods. If fixed costs are monthly, the answer is monthly units. Do not compare it with annual sales.
- Ignoring capacity. A break-even volume above what you can produce or sell means the current prices or costs do not work.
- Assuming constant prices and costs. Discounts for volume, step-up costs and several products with different margins break the single-product model.
Use the result as a planning estimate, and rerun it with a slightly lower price and a slightly higher cost to see how much room for error you have. For several products, use an average contribution margin weighted by expected sales mix, and treat the answer as approximate. Taxes and financing costs are not included. Also remember that break-even is a minimum, not a goal: it tells you the volume at which you stop losing money, so a business normally needs a comfortable margin of safety above it.
Worked example
A small business has 12,000 of fixed costs, sells a product for 40 and spends 22 on materials and fees per unit. It also wants to earn 6,000 profit.
Inputs
| Total fixed costs | 12000 |
|---|---|
| Selling price per unit | 40 |
| Variable cost per unit | 22 |
| Target profit | 6000 |
Result
Revenue of about 26,666.67 covers all fixed and variable costs.
| Contribution margin per unit | 18.00 |
|---|---|
| Contribution margin ratio | 45.00% |
| Break-even revenue | 26,666.67 |
| Break-even units (exact) | 666.67 |
| Units needed for the target profit | 1,000.00 |
| Revenue at that volume | 40,000.00 |
Profit at different sales volumes
| Units sold | Revenue | Total cost | Profit or loss |
|---|---|---|---|
| 0 | 0.00 | 12,000.00 | -12,000.00 |
| 167 | 6,680.00 | 15,674.00 | -8,994.00 |
| 334 | 13,360.00 | 19,348.00 | -5,988.00 |
| 501 | 20,040.00 | 23,022.00 | -2,982.00 |
| 668 | 26,720.00 | 26,696.00 | 24.00 |
| 835 | 33,400.00 | 30,370.00 | 3,030.00 |
| 1,002 | 40,080.00 | 34,044.00 | 6,036.00 |
| 1,169 | 46,760.00 | 37,718.00 | 9,042.00 |
| 1,336 | 53,440.00 | 41,392.00 | 12,048.00 |
- Units are rounded up in the headline because you cannot sell a fraction of a unit and still cover costs.
Financial disclaimer: Results are estimates for planning and education. They are not financial, tax or legal advice. Fees, taxes, rates and rules vary by lender, product and country, so confirm figures with your provider or a qualified adviser before making decisions.
Frequently asked questions
What is the break-even point?
It is the sales volume at which total revenue equals total costs, so you make neither profit nor loss. Every unit sold beyond it adds its contribution margin to profit.
How do I calculate break-even units?
Divide total fixed costs by the contribution margin per unit, which is the selling price minus the variable cost per unit. Round up to a whole unit.
How do I include a profit target?
Add the target profit to fixed costs before dividing by the contribution margin. The calculator does this when you fill in the optional target field.
Why does the calculator show an error?
If the price is not higher than the variable cost per unit, each sale adds nothing towards fixed costs, so there is no break-even volume. Raise the price or reduce the variable cost.
Can I use it for services?
Yes. Treat an hour, a project or a customer as the unit, set the price per unit, and put per-unit costs such as subcontractors or materials in variable cost.
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References and sources
- Horngren, Datar and Rajan, Cost Accounting: A Managerial Emphasis, chapter on cost-volume-profit analysis.
- Drury, Management and Cost Accounting: break-even analysis.