What break-even means
Your break-even point is the number of sales where you stop losing money. Below it, sales don't yet cover your fixed costs. Above it, every extra sale adds profit.
It is one of the most useful numbers a product business can know. It tells you whether a price works, how much a new cost really needs to earn back, and whether your sales forecast is safely ahead of the line or only just clearing it.
How the calculator works
- Fixed costs are what you pay each month whatever you sell: rent, software, insurance, salaries and loan repayments.
- Price per unit is what a customer pays you for one item. If you sell both wholesale and direct, run the calculator for each channel, or use an average price.
- Variable cost per unit is what each sale costs you: the product itself (your COGS per unit), packaging, payment processing and any shipping you pay.
- The difference between price and variable cost is your contribution per unit. That is what each sale puts towards fixed costs.
The calculator divides your fixed costs by that contribution to find the units you need, and rounds up to whole units, because you can't sell part of one. Add a target profit to see the units for that goal. Add your expected sales to see your margin of safety: how far your forecast sits above break-even.
The break-even formula
| Figure | Formula |
|---|---|
| Contribution per unit | Price − variable cost per unit |
| Contribution margin | Contribution per unit ÷ price |
| Break-even units | Fixed costs ÷ contribution per unit |
| Break-even sales | Fixed costs ÷ contribution margin |
| Units for a target profit | (Fixed costs + target profit) ÷ contribution per unit |
| Margin of safety | Expected units − break-even units |
Worked example
A small skincare brand has $3,000 a month in fixed costs. It sells a face oil for $24.00, and each bottle costs $9.00 in product, packaging and payment fees.
- Contribution per unit: $24.00 − $9.00 = $15.00
- Contribution margin: $15.00 ÷ $24.00 = 62.5%
- Break-even: $3,000 ÷ $15.00 = 200 units, or $4,800 in sales a month
- To make $1,500 profit: ($3,000 + $1,500) ÷ $15.00 = 300 units, or $7,200 in sales
- If it expects to sell 260 units, the margin of safety is 60 units, or 23.1% of sales, and profit is $900
Now say the brand cuts its price to $21.00 for a promotion. Contribution drops to $12.00, and break-even rises to 250 units. A $3.00 discount means selling 50 more units just to stand still.
Common mistakes
- Leaving costs out of variable cost. Payment fees, packaging, free shipping and marketplace fees all come out of each sale. Missing them makes break-even look lower than it is.
- Using markup instead of margin. Contribution margin is a share of the price, not of cost. The margin calculator shows the difference.
- Forgetting your own pay. If you take a salary or regular draw from the business, count it as a fixed cost.
- Mixing periods. Fixed costs, target profit and expected sales must all cover the same period. This calculator uses a month.
- Treating break-even as the goal. It is the floor. Plan for a margin of safety so one slow month doesn't put you underwater.
Ways to lower your break-even point
You have three levers: raise the price, lower the variable cost, or cut fixed costs. Small price changes usually move break-even the most, because they go straight to contribution. Use the wholesale price calculator to check your price still works for stores, and the handmade pricing calculator if you make products yourself. When your prices are set, put them in a price list you can send to buyers.