Last updated: March 2026
What Is Break-Even Analysis?
Break-even analysis determines the minimum sales volume required to cover all costs. It is the foundational calculation for any business deciding whether a product, service, or venture is financially viable. Below the break-even point you operate at a loss; above it, every additional sale generates profit.
The formula is straightforward: Break-Even Units = Fixed Costs / (Selling Price - Variable Cost per Unit). The denominator is called the contribution margin because each unit "contributes" that amount toward covering fixed expenses.
How to Use This Tool
Enter your monthly fixed costs (rent, salaries, insurance), variable cost per unit (materials, shipping, commissions), and selling price per unit. The calculator instantly shows your break-even point in units and dollars.
Use the What If sliders to explore pricing strategies without changing your base inputs. The chart and results update in real time so you can see exactly how each variable affects profitability.
Understanding the Break-Even Chart
The chart plots two lines: the red total cost line starts at your fixed costs and slopes upward as variable costs accumulate with each unit. The green revenue line starts at zero and rises with each sale. Where they intersect is your break-even point.
The shaded red zone represents the loss region (costs exceed revenue) and the green zone shows the profit region. Hover over the chart to see exact revenue, costs, and profit at any sales volume.
Frequently Asked Questions
What is a break-even point?
The break-even point is the number of units you must sell so that total revenue exactly equals total costs (fixed + variable). Below this point you lose money; above it you earn profit. It's calculated as Fixed Costs divided by Contribution Margin per Unit (Selling Price minus Variable Cost).
What is the contribution margin?
Contribution margin is the selling price minus the variable cost per unit. It represents the portion of each sale that 'contributes' to covering fixed costs and eventually generating profit. A $40 product with $15 variable cost has a $25 contribution margin — each unit sold puts $25 toward fixed costs.
What counts as a fixed cost vs a variable cost?
Fixed costs stay the same regardless of how many units you sell: rent, salaries, insurance, loan payments, and software subscriptions. Variable costs change with each unit produced or sold: raw materials, packaging, shipping per item, and sales commissions. Some costs are semi-variable (e.g., electricity) — estimate the fixed portion separately.
How do I lower my break-even point?
Three levers: raise your selling price (increases contribution margin), reduce variable costs per unit (also increases contribution margin), or reduce fixed costs. The 'What If' sliders above let you test each scenario instantly. Often a small price increase has the biggest impact because it directly widens the margin.
What is a good margin of safety?
Margin of safety measures how far your actual or expected sales exceed the break-even point. A 25-30% margin of safety is considered healthy for most businesses. Below 15% is risky — a small drop in sales could push you into losses. Seasonal businesses should target higher margins during peak periods.