Legal

Break-Even Calculator

Legal basis: General cost-accounting convention (contribution-margin break-even analysis); no statute governs this formula · checked 2026-10-04 · Rates and limits change — verify the current figures.

The break-even point is the sales volume at which a business neither makes nor loses money: total revenue exactly covers total cost. It is one of the first numbers any lender, investor or partner will ask for, because it converts a vague plan into a concrete target. If your fixed costs are $50,000 per month and each unit sells for $40 with $25 of variable cost, every unit contributes $15 toward fixed costs, and you need roughly 3,334 units to break even.

The arithmetic rests on one idea: contribution margin. Each unit sold brings in the selling price, but part of that is consumed by the variable cost of making or delivering it. What is left, price minus variable cost per unit, is the contribution margin per unit. Break-even units equal fixed costs divided by that contribution. Multiplying break-even units by the price gives break-even revenue, which is the more useful figure for service businesses that think in dollars rather than units. Contribution margin ratio, contribution per unit divided by price, expresses the same idea as a percentage of sales.

The companion measure is margin of safety. If you expect to sell 5,000 units but break even at 3,334, the margin of safety is 1,666 units, or about 33% of expected sales, meaning sales could fall by a third before losses begin. A thin margin of safety is an early warning that the plan has little room for error, while a large one absorbs surprises such as a price cut, a supplier increase or a slow quarter.

The limits matter. The classic formula assumes a single product or a stable sales mix, a constant price, and variable costs that scale neatly with volume; real businesses face quantity discounts, tiered pricing, step-fixed costs such as a new hire, and capacity limits. It is also a pre-tax calculation and ignores financing costs. Treat the result as an educational estimate for planning, not tax, accounting or legal advice, and have a CPA review the cost classifications before you commit.

Calculate

Break-even volume3,333 units exactly; round up since partial units cannot be sold3,334

Break-even revenuesales dollars needed to cover all costs$133,333

Contribution margin per unitprice minus variable cost per unit$15

Contribution margin ratioshare of each sales dollar left after variable costs37.5%

Profit at target volume5,000 units at the entered price and costs$25,000

Margin of safety (units)units by which sales can fall before losses1,667

Margin of safety (% of target)margin of safety divided by target volume33.3%

Input checkthe formula only works when price exceeds variable costPrice exceeds variable cost

How the math works

Contribution margin per unit = selling price per unit − variable cost per unit.
Break-even units = total fixed costs ÷ contribution margin per unit.
Break-even revenue = break-even units × selling price per unit.
Margin of safety = target volume − break-even units (also shown as a percentage of target volume).

Frequently asked questions

What exactly is the break-even point?

The volume at which total revenue equals total cost, so profit is zero. Below it the business loses money; above it each additional unit adds its contribution margin to profit.

How do I calculate break-even in dollars instead of units?

Divide fixed costs by the contribution margin ratio (contribution margin per unit divided by price), or multiply break-even units by the selling price. Both give the same break-even revenue figure.

What is contribution margin?

The amount each unit contributes toward covering fixed costs: selling price minus variable cost per unit. Once enough units have contributed the entire fixed-cost base, everything after that is profit at the unit level.

What does margin of safety tell me?

How far sales can drop below your target before you start losing money, in units or as a percentage. A 10% margin of safety leaves little room for error; 30% or more absorbs a bad quarter without turning to loss.

Why does the calculator warn when price is below variable cost?

Because break-even is then mathematically impossible. If each unit loses money before fixed costs are even counted, selling more only increases the loss, and the fix must come from price, product mix or cost, not volume.

Does this account for taxes or loan payments?

No. This is a pre-tax operating calculation. Principal payments on debt are financing flows, not operating costs, though their interest portion is often treated as fixed. Have a CPA map your actual cost structure before using the result externally.

How accurate is break-even analysis for multiple products?

The single-product formula only works if the sales mix between products is stable, in which case you can use weighted-average price and variable cost. If the mix shifts, or costs jump in steps such as new equipment or a new hire, break-even moves with it.

This calculator is an educational estimate for planning purposes only. It is not accounting, tax or legal advice, cost behaviour and tax rules vary by business and jurisdiction, and the formula assumes constant price, cost and mix. Consult a licensed CPA or attorney before relying on the result for a loan, pricing or investment decision.