How the break-even point is worked out
Each sale earns you the selling price but costs you the variable cost of making and delivering the item. The difference is the contribution of that sale. Your fixed costs are paid out of these contributions, so the break-even point is fixed costs divided by contribution per item, rounded up to a whole item.
Ways to lower your break-even point
- Raise the price a little. Check what that does to your margin with the profit margin calculator.
- Reduce variable costs by buying in larger quantities or changing packaging.
- Cut or share fixed costs, for example a cheaper workspace.
Once you reach break-even, see what a return on a bigger investment looks like with the ROI calculator.
Frequently asked questions
What is the break-even point?
It is the number of items you must sell so that your income exactly equals your costs. Sell fewer and you lose money. Sell more and every extra item adds profit.
What is the break-even formula?
Break-even units = fixed costs ÷ (selling price − variable cost per item). The part in brackets is called the contribution margin: what each sale adds towards covering fixed costs.
What counts as a fixed cost?
Costs that stay about the same however much you sell: rent, salaries, insurance, software subscriptions and loan instalments. Costs that rise with each sale, such as materials, packaging and delivery, are variable costs.
Why does the answer say no break-even?
If your selling price is the same as or lower than the variable cost, every sale loses money or earns nothing, so you can never cover the fixed costs. Raise the price or cut the cost per item.
How do I use the target profit box?
Add the profit you want to make in the period. The calculator treats it like an extra fixed cost and tells you how many items you must sell to earn that profit as well.