Break Even Calculator
The break-even point is the sales level at which a business stops losing money. Every unit after it contributes to profit.
The calculation
The contribution margin is the key figure: it is what each sale contributes towards covering fixed costs once its own direct costs are paid. At £45 a unit with £18 of variable cost, each sale contributes £27. With £5,000 of fixed costs, you need 186 units to cover them.
Round up, always. 185.2 units means 186, because you cannot sell a fifth of a unit and 185 leaves you short.
Sorting fixed from variable
Getting this split right matters more than the arithmetic:
| Fixed | Variable |
|---|---|
| Rent and business rates | Raw materials |
| Salaried staff | Hourly or piece-rate labour |
| Insurance | Packaging |
| Software subscriptions | Payment processing fees |
| Accountancy | Shipping per order |
| Equipment depreciation | Sales commission |
Two complications in practice. Semi-variable costs — a phone contract with a fixed line rental plus usage charges — need splitting into their two parts. And step costs are fixed only within a range: one delivery van handles 500 orders a month, and order 501 requires a second van. Break-even analysis assumes linearity, so recalculate at each step.
Margin of safety and what to do with it
This is how far sales can fall before you start losing money. At 300 units expected against a 186-unit break-even, the margin is 38 % — sales could drop by more than a third before trouble. Below about 20 %, the business is fragile to a bad quarter.
There are only four levers on the break-even point, and it is worth knowing their relative power:
- Raise the price. Usually the strongest lever, because the whole increase goes to contribution. A 10 % price rise here cuts break-even by 14 %.
- Cut variable costs. Better supplier terms, less waste, cheaper packaging.
- Cut fixed costs. Directly proportional: 10 % less fixed cost means 10 % fewer units needed.
- Change the mix towards higher-margin products.
Frequently asked questions
What if I sell several different products?
Use a weighted average contribution margin based on your actual sales mix, then divide fixed costs by that. The result is valid only while the mix holds — if customers shift towards your lower-margin lines, break-even rises even though total units do not change.
Should my own salary be a fixed cost?
Yes, if you need to be paid. Many small businesses calculate break-even excluding the owner's income and then discover the business cannot actually support them. Include a realistic salary in fixed costs from the start.
Does break-even include tax?
No. It is a pre-tax measure: at break-even, profit is zero, so there is nothing to tax. If you are targeting a specific after-tax profit, gross it up first by dividing by (1 − tax rate) before adding it to fixed costs.