What is the break-even point?

The break-even point is the sales volume at which total revenue exactly equals total cost, so profit is zero. Below it you lose money; above it you make money. It is the first number any business plan needs because it tells you the minimum you must sell to survive.

How is break-even calculated?

First find the contribution margin per unit: price minus variable cost per unit — the cash each sale contributes toward fixed costs. Break-even units equal fixed costs divided by that contribution margin. Multiply break-even units by price to get break-even revenue.

What is contribution margin?

Contribution margin per unit is the selling price minus the variable cost of producing that unit. It is the portion of each sale that is left over to cover fixed costs and, beyond break-even, to become profit. If it is zero or negative, no volume can make the business profitable.

What is the margin of safety?

The margin of safety is how far your expected sales sit above the break-even point, usually shown as a percentage of expected sales. A 30% margin of safety means sales could fall 30% before you start losing money. A thin margin of safety means a small dip wipes out your profit.

What if the price is below the variable cost?

Then your contribution margin is negative — every unit sold loses money before fixed costs are even considered, so there is no break-even point at any volume. The tool flags this case. The fix is to raise the price or cut the variable cost per unit until the margin turns positive.

Break-Even Analysis Builder

Find the exact point where your business starts making money

Break-even analysis answers the most important question in a business plan: how much do I have to sell before I stop losing money? This builder takes your fixed costs, the variable cost per unit, and your selling price, and computes the contribution margin, the break-even point in both units and revenue, and — if you supply an expected sales figure — your margin of safety and projected profit. It turns a pricing gut-feel into a number you can defend.

How it works

The analysis rests on the contribution margin — the cash each sale leaves over after its own variable cost:

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

At expected sales:
  Profit            = (expected units × contribution margin) − fixed costs
  Margin of safety  = (expected units − break-even units) ÷ expected units × 100%

If the contribution margin is zero or negative, the price does not even cover the variable cost of each unit, so no volume can ever break even — the tool flags this and tells you to raise price or cut variable cost. Otherwise it reports the units and revenue you must hit, and how much cushion your expected sales give you.

Tips and example

Suppose fixed costs are £10,000, each unit costs £6 to make, and you sell at £16. The contribution margin is £16 − £6 = £10, so break-even is £10,000 ÷ £10 = 1,000 units, or £16,000 of revenue. If you expect to sell 1,500 units, your margin of safety is (1,500 − 1,000) ÷ 1,500 = 33% and your profit is (1,500 × £10) − £10,000 = £5,000. Watch the contribution margin first: a low margin means you need huge volume to break even, and discounting the price shifts the break-even point further away faster than most people expect. Raising price or trimming variable cost both pull break-even closer.

Break-Even Analysis Builder

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How it works

Tips and example