What is the break-even point?
The break-even point is where total revenue equals total costs — the business is covering its expenses but hasn't yet turned a profit. Every unit sold past that point contributes to profit; every unit short of it means an overall loss for the period.
Break-even in units
Units = Fixed Costs ÷ (Price per Unit − Variable Cost per Unit) The denominator is the contribution margin — how much of each sale is left over after variable costs, to go toward covering fixed costs. A $10,000 fixed cost with a $50 price and $30 variable cost per unit gives a $20 contribution margin, so 500 units are needed to break even: 500 × $20 = $10,000, exactly covering the fixed costs.
Break-even price
Price = (Fixed Costs ÷ Expected Units) + Variable Cost per Unit This flips the question around: instead of "how many units," it asks "what price." Spreading $10,000 in fixed costs over 400 expected units adds $25 to each unit's variable cost of $30, meaning a price of $55 per unit is needed to break even at that volume.
Frequently asked questions
What is contribution margin?
Contribution margin is the price of a unit minus its variable cost — the amount each sale contributes toward covering fixed costs before any profit is made. A higher contribution margin means fewer units are needed to break even.
What if my price is lower than my variable cost?
Then break-even is mathematically impossible — every unit sold loses money, so no sales volume, however large, will ever cover the fixed costs. The price needs to be raised or the variable cost reduced before a break-even point exists.
What's the difference between fixed and variable costs?
Fixed costs stay the same regardless of how many units are sold — rent, salaries, insurance. Variable costs scale with each unit sold — materials, packaging, per-unit shipping. Break-even analysis depends on separating the two correctly.