Every business needs to know its break-even point—the exact sales volume where revenue equals costs and profit begins. This calculator reveals your magic number and shows how pricing, costs, and volume affect profitability.
How This Calculator Works
This calculator determines your break-even point:
- Fixed Costs: Expenses that don't change with sales (rent, salaries, insurance)
- Variable Costs: Costs per unit that scale with production
- Selling Price: What you charge per unit
- Break-Even Units: How many units you must sell to cover all costs
- Break-Even Revenue: Dollar sales needed to break even
The Formula Explained
Contribution Margin = Price per Unit - Variable Cost per Unit
Break-Even Units = Fixed Costs / Contribution Margin
Break-Even Revenue = Break-Even Units × Price per Unit
Margin of Safety = Actual Sales - Break-Even Sales
Step-by-Step Example
Coffee Shop Break-Even Analysis
| Cost Type | Monthly Amount |
| Rent | $3,000 |
| Staff Salary | $8,000 |
| Insurance | $500 |
| Total Fixed Costs | $11,500 |
| Per-Cup Metrics | Amount |
| Selling Price | $4.50 |
| Coffee, cup, supplies | $1.20 |
| Contribution Margin | $3.30 |
Break-Even = $11,500 / $3.30 = 3,485 cups/month
That's ~116 cups per day (about 5 cups per hour in an 8-hour day).
Frequently Asked Questions
What is a break-even point?
The break-even point is where total revenue equals total costs—zero profit, zero loss. Below this point, you lose money on every sale. Above it, each additional sale generates profit. It's the minimum sales target every business must hit to survive.
Why is break-even analysis important?
Break-even analysis helps you: (1) Set realistic sales targets, (2) Make pricing decisions, (3) Evaluate whether a business idea is viable, (4) Understand how cost changes affect profitability, (5) Calculate margin of safety during downturns. It's fundamental to business planning.
What's the difference between fixed and variable costs?
Fixed costs stay constant regardless of sales volume—rent, insurance, salaries, loan payments. Variable costs change with production—raw materials, packaging, shipping, sales commissions. Some costs are semi-variable (electricity has a base cost plus usage). Correctly categorizing costs is essential for accurate break-even analysis.
What is contribution margin?
Contribution margin is the profit per unit before fixed costs: Price minus Variable Cost. It's called "contribution" because each sale contributes this amount toward covering fixed costs. After fixed costs are covered (break-even), each additional contribution margin dollar becomes profit.
What is margin of safety?
Margin of safety measures how far sales can drop before hitting break-even. If your break-even is 1,000 units and you sell 1,500, your margin of safety is 500 units (33%). A higher margin of safety means more cushion against sales decline. Low margin of safety indicates high risk.
How can I lower my break-even point?
Three approaches: (1) Reduce fixed costs—renegotiate rent, cut unnecessary overhead, (2) Lower variable costs—find cheaper suppliers, improve efficiency, (3) Raise prices—increases contribution margin. Each approach has trade-offs; combine them strategically.
Does break-even analysis work for service businesses?
Yes, but you may need to define "units" as hours billed, projects completed, or customers served. Fixed costs remain similar (rent, admin staff). Variable costs might be minimal or per-project (materials, contractors). Calculate break-even billable hours or projects needed monthly.
What are the limitations of break-even analysis?
Assumptions that may not hold: (1) All units sell at the same price (ignoring discounts), (2) Variable costs are truly linear, (3) Product mix stays constant, (4) Fixed costs don't change with volume, (5) All production is sold. Real businesses have more complexity—use break-even as a starting point, not the final answer.
Key Points to Remember
- Know your numbers: Fixed costs, variable costs, and contribution margin
- Unit vs Revenue: Calculate both break-even units and break-even dollars
- Margin of safety: Track how far you are above break-even
- Sensitivity analysis: See how price or cost changes affect break-even
- Regular updates: Recalculate when costs or pricing change