How it works
Break-even is the volume where total revenue exactly covers total costs — fixed costs plus variable costs at that volume. Below break-even you lose money each month; above it, every additional unit contributes profit. The engine computes contribution margin per unit (price minus variable cost), divides fixed costs by that margin to get break-even units, then multiplies by price for break-even revenue. On the defaults — $50,000 fixed costs, $45 selling price, $25 variable cost per unit — contribution margin is $20 per unit. Break-even units = $50,000 ÷ $20 = 2,500 units. Break-even revenue = 2,500 × $45 = $112,500. Two implications worth internalising. First, price is a volume lever: a 20% price increase from $45 to $54 cuts break-even units from 2,500 to about 2,083 without touching fixed costs, assuming demand holds. Second, fixed costs are the anchor — a $10,000 reduction in rent or software spend drops break-even by 500 units at $20 contribution. Investors and lenders ask for this vocabulary: "we break even at 2,500 units and $112,500 of revenue with $20 contribution per unit." The Small Business Administration publishes break-even guidance for new ventures at sba.gov. Pair with the profit margin calculator for pricing sanity checks and startup costs calculator when fixed costs are still being estimated.
Formula
Contribution margin = price − variable cost per unit
Break-even units = fixed costs / contribution margin
Break-even revenue = break-even units × price
Worked example — defaults
Contribution = $45 − $25 = $20/unit
Break-even units = $50,000 / $20 = 2,500
Break-even revenue = 2,500 × $45 = $112,500
Tips
- If price ≤ variable cost, there is no break-even — the engine errors and so should your business model.
- Cut fixed costs before chasing volume: every $1,000 saved lowers break-even by $1,000 ÷ contribution margin units.
- Model a pessimistic price alongside your target price — elasticity often bites harder than cost inflation.
- Convert to monthly break-even by using monthly fixed costs; the unit math is identical.
- Segment by product line — company-wide averages hide products that never reach break-even alone.
Frequently asked questions
- How many units to break even on the defaults?
- 2,500 units at $45 each, generating $112,500 of revenue. Each unit contributes $20 toward the $50,000 fixed cost pool after covering its $25 variable cost.
- What is contribution margin?
- Price minus variable cost — $20 on the defaults. It is the portion of each sale that pays toward fixed costs first and becomes profit only after fixed costs are fully covered.
- How does a price change affect break-even?
- Linearly in the denominator. Raising price from $45 to $50 (variable cost held at $25) increases contribution to $25 and drops break-even to 2,000 units. Lowering price does the opposite — the calculator makes the trade visible instantly.
- What counts as fixed versus variable cost?
- Fixed: rent, salaried staff, insurance, core software — costs that do not scale with units sold. Variable: materials, per-unit labour, shipping, payment processing — costs that rise with each sale. Misclassifying variable costs as fixed makes break-even look easier than it is.
- Is break-even revenue the same as break-even profit?
- At exactly break-even, profit is zero — revenue equals total costs. The break-even revenue figure ($112,500 here) is the sales line where that happens; the next dollar of revenue above it is profit at the contribution margin rate on incremental units.