Break-Even Calculator

Understanding Break-Even Analysis for Your Business

Break-even analysis is one of the most important financial calculations for any business. Whether you're launching a new product, starting a service business, or evaluating your current operations, knowing your break-even point helps you make smarter decisions about pricing, costs, and sales targets.

What Is a Break-Even Point?

Your break-even point is the exact number of units you need to sell (or amount of revenue you need to generate) to cover all your business costs. At this point, you're not making a profit, but you're also not losing money—you're simply "breaking even."

The break-even formula is straightforward: Break-Even Point (units) = Fixed Costs ÷ (Price per Unit - Variable Cost per Unit). The denominator (Price - Variable Cost) is called your contribution margin—the amount each sale contributes toward covering your fixed costs.

Why Break-Even Analysis Matters

Knowing your break-even point gives you critical insights into your business:

• Set Realistic Sales Targets: You'll know exactly how many sales you need to stay afloat and how many more to become profitable.
• Price Intelligently: Understanding how pricing affects your break-even point helps you find the sweet spot between competitiveness and profitability.
• Control Costs: When you see how fixed and variable costs impact break-even, you can make informed decisions about where to cut expenses.
• Evaluate New Ventures: Before launching a product or service, calculate break-even to assess financial viability.
• Secure Funding: Investors and lenders want to see that you understand your path to profitability—break-even analysis proves you've done the math.

Fixed Costs vs. Variable Costs

Fixed costs remain constant regardless of how much you sell. Common examples include rent, full-time salaries, insurance premiums, software subscriptions, and equipment leases. These costs stay the same whether you sell one unit or one thousand.

Variable costs change with production volume. They include raw materials, packaging, shipping, sales commissions, and cost of goods sold (COGS). As you sell more, variable costs increase proportionally.

Using Break-Even Analysis for Pricing Decisions

Your break-even point is extremely sensitive to pricing. A small increase in price can dramatically lower the number of units needed to break even. Conversely, pricing too low—even if it attracts more customers—can make profitability nearly impossible if your margin is too thin.

Use this calculator to experiment with different pricing scenarios. See how a 10% price increase affects your break-even point, or test whether lowering variable costs by sourcing cheaper materials makes sense for your business model.

When to Recalculate Your Break-Even Point

Your break-even point isn't static. Recalculate it whenever you experience changes in rent, add staff, adjust pricing, negotiate better supplier rates, or introduce a new product line. Regular break-even analysis keeps you informed about your business's financial health and helps you stay ahead of potential cash flow problems.

Beyond Break-Even: Planning for Profit

Once you know your break-even point, add your profit goal to fixed costs and recalculate. For example, if your fixed costs are $5,000 and you want to make $2,000 profit, use $7,000 as your "target" in the formula. This tells you exactly how many units you need to sell to hit your profit goals—not just break even.