Work out how many units you need to sell to cover fixed and variable costs, and the revenue that volume brings in.
Example
With fixed costs of 1,000, a price of 25 and a variable cost of 15, each sale contributes 10, so break-even arrives at 100 units and 2,500 of revenue. With 5,000 of fixed costs, a price of 40 and a variable cost of 28, the exact figure is 416.67 units, so 417 sales and 16,680.
Calculation method
Contribution per unit is the selling price minus the variable cost of one unit. Break-even units are the fixed costs divided by that contribution, and the whole-unit answer is rounded up because part of a unit cannot be sold. Revenue is the rounded-up unit count multiplied by the price.
Important notes
The model assumes one constant price, one constant variable cost and fixed costs that do not move with volume, and it ignores taxes, discounts, capacity limits and product mix. If the variable cost equals or exceeds the price there is no break-even point, because every extra sale increases the loss.
Fixed costs, price and variable cost
Enter the fixed costs for the period, the selling price of one unit and the variable cost of making or delivering one unit. Each sale contributes price minus variable cost toward the fixed costs. With 1,000 of fixed costs, a price of 25 and a variable cost of 15, each unit contributes 10, so 100 units cover the fixed costs and bring in 2,500 of revenue. Fixed costs are things like rent or software that do not change with volume; materials, packaging and payment fees per sale are variable.
Why the answer is rounded up
You cannot sell part of a unit, so the whole-unit result rounds up. With fixed costs of 5,000, a price of 40 and a variable cost of 28, the exact break-even is 416.67 units; selling 416 would still leave a small loss, so the answer is 417 units and 16,680 of revenue. A product priced at 19.99 with a variable cost of 7.50 and 800 of fixed costs needs 64.05 units, so 65 sales and 1,299.35 of revenue.
Testing price changes
Raising the price has a large effect when contribution per unit is thin. Moving the 19.99 product to 27 increases the contribution from 12.49 to 19.50, and the break-even falls from 65 units to 42. Check whether demand would still reach that volume at the higher price. If the variable cost is equal to or above the price, there is no break-even point because every sale adds to the loss. The model assumes constant costs and prices and ignores taxes and capacity limits.
Worked examples| Input | Result |
|---|
1,000 · 25 − 15 | 100 (100) · 2,500 |
5,000 · 40 − 28 | 417 (416.67) · 16,680 |
800 · 19.99 − 7.5 | 65 (64.05) · 1,299.35 |
800 · 27 − 7.5 | 42 (41.03) · 1,134 |
Frequently asked questions
Why is the unit answer rounded up?
Because part of a unit cannot be sold. With 5,000 of fixed costs, a price of 40 and a variable cost of 28, break-even falls at 416.67 units, and selling 416 would still leave a small loss, so the tool reports 417 units and 16,680 of revenue. The exact figure is shown too, so you can see how far into the last unit you are.
What counts as a fixed cost?
Anything that stays the same whatever you sell: rent, salaries, insurance, software subscriptions. Materials, packaging, shipping and payment fees change with every sale, so they belong in the variable cost. Putting a cost in the wrong box moves the break-even point, so split any bill that has both parts before entering it.
How much does raising the price help?
A great deal when the contribution is thin. A product at 19.99 with a variable cost of 7.50 and 800 of fixed costs contributes 12.49 and needs 65 sales, or 1,299.35 of revenue. Moving the price to 27 lifts the contribution to 19.50 and drops break-even to 42 units and 1,134. Check that demand still reaches that volume at the higher price.