How to Calculate a Business Break-Even Point
Understand break-even sales, fixed costs, variable costs and target profit with a simple worked example.
In this guide
What break-even means
Break-even is the point where total revenue covers total costs. You have not made a profit yet, but you are no longer losing money on the assumptions used in the calculation. It is a planning tool, not a prediction of what customers will definitely buy.
The key numbers
You normally need fixed costs, selling price per unit and variable cost per unit. Fixed costs do not change directly with each additional unit, while variable costs rise as more units are produced or sold.
A simple example
Suppose fixed costs are 10,000, a product sells for 100 and variable cost is 60. The contribution per unit is 40, so break-even is 10,000 divided by 40: 250 units.
Planning for a profit
Once break-even is known, you can add a desired profit to the fixed costs and divide by the contribution per unit. This gives a useful sales target, provided your cost and price assumptions are realistic.
Remember what the calculator cannot know
A calculator cannot tell you whether your price is competitive, whether customers will buy enough units or whether your cost assumptions are correct. Those are business questions that need real-world information.
Try the related tool
If you came here because you need to do the calculation or create something now, you can use the matching KingToolsKit tool and then come back to the guide when you want the explanation.
Open the tool →