Break-Even Calculation: Formula and Worked Example

Break-even is the sales level where revenue covers the costs included in your model. It is an arithmetic estimate, not a forecast that those sales will occur.

Separate the three inputs

• Fixed costs: costs for the chosen period that do not change with the modeled number of units.
• Selling price per unit: use a consistent treatment of taxes and discounts.
• Variable cost per unit: costs that increase with each additional unit.

Use the same period and currency throughout. The currency symbol displayed by the Break-Even Calculator is a label; it does not convert exchange rates.

Calculate units and revenue

For fixed costs of 50,000, a price of 100 and a variable cost of 60, the contribution is 40. Break-even is 50,000 ÷ 40 = 1,250 units. Revenue at that point is 1,250 × 100 = 125,000.

If the result is 1,250.25 and you sell whole units, you need at least 1,251 units to cover the modeled costs. The calculator’s revenue result uses the unrounded mathematical break-even quantity; revenue from the rounded whole-unit quantity can differ.

Check whether the model makes sense

If the price is equal to or below the variable cost, selling more units does not produce a positive contribution to cover fixed costs. Recheck the inputs. With several products, different margins and a changing sales mix, a single-unit model may be inadequate.

Capacity limits, returns, seasonal demand, financing, taxes and step changes in costs can change the outcome. Compare several plausible assumptions and use appropriate professional review for financial decisions.