Break-even point: formulas and calculation

The break-even point is the sales level at which the revenue considered exactly covers the relevant costs. Below it, the activity has not yet covered all costs; above it, additional sales contribute to profit.

Use the Bethemesh break-even calculator to calculate both units and required revenue.

Break-even formulas

Unit contribution margin = Selling price − Unit variable cost

Break-even units = Fixed costs / Unit contribution margin

Contribution margin ratio = Unit contribution margin / Selling price

Break-even revenue = Fixed costs / Contribution margin ratio

With €10,000 fixed costs, a €50 selling price and €30 variable cost, unit contribution margin is €20. Break-even is therefore 500 units or €25,000 in revenue.

Understanding contribution margin

Contribution margin is what remains from each sale after the variable cost directly associated with that unit. It first contributes to absorbing fixed costs. A higher selling price at constant variable cost lowers break-even; a higher variable cost does the opposite.

Break-even threshold or break-even point?

The threshold usually expresses an activity level such as revenue or units. A break-even point can additionally express when that threshold is reached during a period.

Break-even and ROI

Break-even asks how much must be sold to cover costs. ROI asks what return an investment generated relative to its cost. They are complementary: once equilibrium is understood, the ROI calculator can measure overall return.

For pricing analysis, also use the margin calculator.

Limits

This simple model assumes relatively constant selling prices and unit variable costs. Businesses with multiple products may also need assumptions about sales mix, discounts, capacity constraints and changing costs.