Break-even point calculator

The break-even point is the sales figure at which a business stops losing money. Below it you lose, above it you profit.

It is the first number anyone starting a business or launching a product should know.

Every unit sold leaves a contribution margin, which is the price minus the variable cost. That margin chips away at the fixed costs until they are covered.

Contribution margin is the key

Every unit sold leaves a margin equal to its price minus its variable cost. That margin is not profit: first it has to work through the fixed costs. Break-even arrives when the sum of the margins exactly equals the fixed costs. From then on, each additional unit is almost entirely profit.

Why cutting prices is dangerous

Reducing the price cuts the contribution margin, and break-even rises further than intuition suggests. On a twenty per cent margin, a five point price cut forces you to sell a third more just to stand still. Aggressive discounting sinks businesses that looked healthy.

Costs that look fixed but are not

A workshop's electricity rises with output. Sales commissions grow with turnover. Transport depends on units shipped. Classifying them as fixed artificially inflates the margin and puts break-even below the real figure.

With several products

If you sell different things at different margins, break-even depends on the mix. Selling the same amount in money but weighted towards the lower-margin product can leave you at a loss.