Break‑even formula, explained (with practical intuition)

The break‑even point is one of the fastest ways to sanity‑check a business idea, a pricing change, or a new offer. It answers a single question: how many units do I need to sell so that revenue covers all costs? What makes it useful is that it forces you to separate costs into two buckets that behave differently: fixed costs (that stay the same for a period) and variable costs (that scale with each unit).

Here’s the core idea. Every time you sell one unit, you collect the price. But you also incur the variable cost per unit. The leftover amount is your contribution margin:

Contribution margin (per unit) = Price − Variable cost per unit

That margin is what “contributes” toward paying your fixed costs. Once fixed costs are fully covered, each additional unit sold (in the same period) creates profit equal to the contribution margin — until something changes your cost structure.

If you have fixed costs of F for a period (like $5,000 per month), and contribution margin of CM per unit (like $60 per unit), then the number of units needed to break even is:

Break‑even units = F ÷ CM

That’s it. But there are two “gotchas” that matter in real life: (1) units aren’t fractional (you can’t sell 83.33 units), and (2) contribution margin can be small or even negative. This calculator shows the break‑even units and rounds up to the next whole unit for an actionable target.

Some people prefer to think in dollars instead of units. Once you know break‑even units, break‑even revenue is simply:

Break‑even revenue = Break‑even units × Price

If you’re selling multiple products, you can still use this idea by using a weighted average price and variable cost (or by doing a separate break‑even for each product line).

Break‑even is “profit = 0.” But most plans need positive profit. That’s why this calculator includes a profit target. If you want P profit in the period, you’re effectively asking your contribution margin to cover fixed costs + profit:

Units for profit target = (F + P) ÷ CM

This is extremely useful for pricing: if a small price increase boosts contribution margin, the number of required sales can drop dramatically — which means fewer leads needed, less ad spend required, and less operational stress.

“Profit margin” is usually expressed as a percentage of revenue. It’s great for comparing businesses, but it’s not the best planning tool when you’re trying to figure out how many sales you need. Contribution margin is more actionable because it maps directly to units: each unit adds CM dollars toward fixed costs. That makes the break‑even math intuitive: if CM is $60 and fixed costs are $6,000, you need 100 units.

Suppose you’re selling a digital product for $100. Your variable costs include payment processing, support time, and software — totaling $40 per sale. Your fixed costs (tools, base contractor, subscriptions) are $5,000 per month.

• Contribution margin: $100 − $40 = $60
• Break‑even units: $5,000 ÷ $60 = 83.33 → round up to 84 units
• Break‑even revenue: 84 × $100 = $8,400

If you also want $2,000 profit that month: (F + P) ÷ CM = ($5,000 + $2,000) ÷ $60 = 116.67 → 117 units. Notice how profit targets are just “extra fixed cost” in the formula.

Many calculators stop at break‑even, but the real question is often: “Am I likely to reach it?” The optional “Planned units” slider lets you compare your expected sales volume to break‑even. The progress bar shows how close your plan is: 100% means your plan is at or above break‑even. If you’re at 40%, you have three levers: reduce fixed costs, reduce variable costs, or increase price.

• Discounts: Use your average realized price (after discounts/coupons), not list price.
• Returns & refunds: Treat them as a variable cost (or lower your realized price).
• Ad spend: If you plan to spend more as you grow, that’s not fixed — it scales with sales.
• Step costs: Hiring, warehousing, or new equipment can jump costs at certain volumes.
• Time: If support time scales, convert it to cost (hours × hourly rate) and add to variable cost.

Used correctly, break‑even is a powerful “decision filter.” It won’t predict the future, but it will quickly tell you whether your plan is structurally viable — and which lever will have the biggest impact.

Frequently Asked Questions

• What counts as fixed costs?

  Fixed costs are expenses that do not change (much) as you sell more units in the period: rent, base salaries, insurance, core subscriptions, depreciation, and “always‑on” tools. If a cost rises with sales volume (like shipping, payment fees, packaging, or support hours), treat it as variable.

• What if I have multiple products or plans?

  Use a weighted average price and variable cost based on your expected mix (e.g., 70% plan A, 30% plan B). Alternatively, calculate break‑even for each product line separately and then plan your mix.

• Why does the calculator say break‑even is “impossible”?

  Break‑even requires a positive contribution margin. If price ≤ variable cost, each sale loses money before you even consider fixed costs. In that case you must raise price, reduce variable costs, or redesign the offer.

• Should I include taxes?

  For rough planning, many people ignore taxes. For tighter planning, treat taxes as a percentage “variable cost” by reducing price to after‑tax revenue, or increasing costs. The key is consistency: compare apples to apples.

• How do I estimate variable cost for services?

  Convert time into money. If you spend 1.5 hours per client and want $60/hour, that’s $90 of labor per client. Add payment fees, software seat costs, and any delivery expenses. That total becomes variable cost per “unit.”

• What’s a “good” break‑even point?

  “Good” depends on your market. A healthy plan usually has (1) a comfortable contribution margin, and (2) a break‑even unit count that you can realistically reach with your marketing and operations. If break‑even feels far away, use the sliders to see which lever (price, variable cost, fixed costs) moves it most.

• How can I improve break‑even the fastest?

  Increase contribution margin. Often the biggest wins come from: raising price a bit, removing expensive features, improving fulfillment efficiency, negotiating supplier costs, or shifting customers toward higher‑margin plans. Reducing fixed costs helps too, but margin changes compound across every sale.

• Does this work for SaaS?

  Yes, with a twist: “unit” can be a customer or a subscription month. Variable cost can include support time, onboarding, usage‑based infra, and payment fees. Fixed costs include salaries and base infra. Many SaaS teams also model churn and lifetime value separately — break‑even is still useful for unit economics and planning targets.

Make it shareable (and actually useful)

Break‑even results are perfect for sharing with co‑founders, clients, or your audience — especially when you frame it as a “pricing reality check.” Try posting: “My offer breaks even at X sales — here’s how I’m lowering it.” The fastest virality comes from showing one lever (price, variable cost, fixed costs) and how it changes the outcome.

• “If I raise price by 10%, my break‑even drops by ___%. That’s why pricing is leverage.”
• “My hidden variable cost was support time. After fixing it, break‑even moved from ___ to ___.”
• “My profit target is ___ — so I actually need ___ sales, not just break‑even.”