Break-Even Calculator

The break-even formula

• Contribution Margin = Selling Price − Variable Cost per Unit
• Break-Even Units = Fixed Costs ÷ Contribution Margin
• Break-Even Revenue = Break-Even Units × Selling Price
• Contribution Margin % = (Contribution Margin ÷ Selling Price) × 100

Break-even formula — worked example

A small manufacturer has:

• Fixed costs: £24,000/month (rent, salaries, insurance)
• Variable cost per unit: £8 (materials + packaging)
• Selling price: £20

Step by step:

• Contribution Margin = £20 − £8 = £12
• Break-Even Units = £24,000 ÷ £12 = 2,000 units
• Break-Even Revenue = 2,000 × £20 = £40,000

This business needs to sell 2,000 units or generate £40,000 in revenue before it becomes profitable.

What is contribution margin?

Contribution margin is the amount each unit sold contributes toward covering fixed costs and generating profit. A higher contribution margin means you break even faster with fewer units sold.

How to reduce your break-even point

• Lower fixed costs — negotiate rent, reduce headcount, switch to pay-as-you-go software.
• Lower variable costs — buy materials in bulk, improve production efficiency.
• Increase selling price — even small price increases significantly reduce the units needed to break even.

Frequently asked questions

What is the difference between fixed and variable costs?
Fixed costs stay constant regardless of output (rent, salaries). Variable costs scale with production (materials, delivery). Correctly classifying costs is essential for accurate break-even analysis.

What does it mean if break-even takes very long?
A high break-even point means you need substantial volume or revenue before turning a profit. Consider reducing costs or increasing price to make the business more viable at lower volumes.

Can a service business use the break-even formula?
Yes. For services, variable cost per unit might be hours of labor or software costs per client. The same formula applies.