How to calculate your break-even point (and what it doesn't tell you)

Before a business, a product or a side project exists, one number decides whether it can: how much has to be sold before it stops losing money. Break-even analysis answers that with three inputs and one division, and the break-even calculator draws the chart. This guide works through it, then is honest about what the neat formula hides.

Fixed costs, variable costs

Fixed costs are what you pay whether you sell or not: rent, salaries, insurance, software, loan repayments, the accountant. Variable costs are what each unit costs to make and sell: materials, packaging, payment-processing fees, shipping, the commission on a marketplace. The split isn't always clean — a part-time assistant is fixed until you're busy enough to need a second — but the distinction is the whole model, so decide for each cost which way it behaves over the range you're planning for. Per unit, the price minus the variable cost is the contribution margin: the amount each sale contributes toward covering the fixed costs and, after that, profit.

The formula and a worked example

Break-even units = fixed costs ÷ (price − variable cost per unit).

A candle maker pays £800 a month in rent, tools and software (fixed). Each candle costs £4 in wax, wick, jar and packaging plus £1 in card fees and shipping (variable £5), and sells for £15. Contribution per candle is £10. Break-even is 800 ÷ 10 = 80 candles a month — about 20 a week, three a day. The 81st candle is the first £10 of profit. Raise the price to £18 and break-even falls to 62; a cheaper jar that cuts variable cost to £4 brings it to 73. The formula turns pricing and sourcing questions into a number you can argue with.

Break-even revenue and target profit

Break-even revenue is units × price: 80 × £15 = £1,200 a month. Equivalently, fixed costs ÷ contribution margin ratio (10 ÷ 15 = 67%): 800 ÷ 0.67 = £1,200, a form that works when you sell many different products with similar margins. To include the profit you need to live on, add it to fixed costs: (800 + 1,500) ÷ 10 = 230 candles a month for £1,500 of profit. That reframing — "how many to pay myself", not "how many to break even" — is usually the more honest planning number.

Reading the break-even chart

The chart plots units along the bottom. The cost line starts at the fixed costs and rises by the variable cost per unit; the revenue line starts at zero and rises by the price. Where they cross is break-even; left of it the gap is loss, right of it profit, and the gap widens with every unit because contribution is constant — the reason scale is so valuable and why businesses with high fixed costs and low variable costs (software, publishing) are terrible below break-even and wonderful above it.

What the model leaves out

• Demand. A break-even of 80 candles says nothing about whether 80 people will buy. The model tests costs and prices; the market tests demand.
• Step costs. Fixed costs are fixed within a range; the second oven, the first employee, the bigger unit are steps that create a new break-even.
• Volume discounts lower variable costs as you grow; price elasticity means a higher price sells fewer units, which the formula ignores.
• Mix. With several products, use a weighted average contribution or model each line.
• Time and cash. Breaking even on paper over a month doesn't mean the cash arrives before the rent is due.

Use it for what it's good at: comparing prices, suppliers and cost structures before committing. The margin calculator handles the pricing side, ROAS explained: the number every ad platform shows, and the one it doesn't the cost of acquiring the customers who buy the units, and the loan calculator the fixed cost of borrowing to start.