How it works
The break-even point is the sales volume at which total revenue equals total costs, so profit is zero. Each unit sold contributes its price minus its variable cost (the contribution margin) toward fixed costs.
Divide fixed costs by contribution margin to get break-even units. Add a target profit to fixed costs to find the volume needed to earn that profit.
Use it to test pricing: a small price increase can sharply reduce the volume you need, while a discount can raise it a lot.
Formula
Break-even units = Fixed costs ÷ (Price − Variable cost per unit). Break-even revenue = Units × Price.
Questions people ask
What counts as a fixed cost?
Costs that stay the same regardless of sales volume over the period you are analyzing, such as rent, base salaries, insurance, loan payments and software subscriptions.
What is a variable cost?
A cost that rises with each unit sold: materials, packaging, shipping, payment processing fees and sales commissions.
How do I calculate break-even for a service business?
Treat an hour or a project as the unit. Use your rate as the price and the direct cost of delivering it (contractor pay, materials) as the variable cost.