Updated
The formula
Each sale first pays its own variable cost, such as materials or payment fees. What is left is the contribution margin. Break-even is reached when those contributions add up to your fixed costs.
contribution per unit = price - variable cost
break-even units = fixed costs / contribution per unit
break-even revenue = break-even units x priceA worked example
Your fixed costs are 5,000 a month. You sell a product for 50, and each one costs 30 to make and ship.
The contribution per unit is 20. Divide 5,000 by 20 and you need to sell 250 units a month. That is 12,500 in revenue.
Add a profit target
To reach a profit, add it to the fixed costs before dividing. For a profit of 2,000 a month in the example, that is 7,000 divided by 20, so 350 units.
Run your own numbers
Enter fixed costs, price and variable cost into the break-even calculator. It shows the contribution margin, the units needed rounded up to a whole unit, and the revenue at break-even. Add a target profit to see how many units it takes.
If the number is too high
There are three ways to bring it down. Check what a new price does to your margin before you change it.
- Raise the price. A small increase can cut the break-even point a lot when the contribution is thin.
- Lower the variable cost per unit.
- Cut fixed costs.
