Break-even analysis answers the first question in any pricing, launch or capacity decision: how much must we sell to cover fixed costs? Enter price, variable cost and fixed costs to see break-even volume, target-profit volume and the cushion your sales forecast provides.
How it works
Find the sales volume needed to cover fixed costs, the volume required for a target profit, and how far expected sales sit above break-even.
Contribution margin (CM) = Price − Variable cost
Break-even units = Fixed costs ÷ CM per unit
Break-even revenue = Fixed costs ÷ CM ratio
Target units = (Fixed costs + Target profit) ÷ CM per unit
Margin of safety = (Expected − Break-even units) ÷ ExpectedCommon uses
- New product and service-line launch decisions
- Pricing and discount analysis
- Capacity, staffing and lease commitments
Worked example
The calculator above opens with this example. Change any input to see the results update instantly, or select Reset to return to these figures.
| Fixed costs (period) | $1,200,000 |
| Selling price per unit | $85 |
| Variable cost per unit | $52 |
| Expected sales (units) | 45,000 |
| Target profit | $150,000 |
| Break-even units | 36,364 |
| Break-even revenue | $3,090,909 |
| Contribution margin / unit | $33.00 |
| Contribution margin ratio | 38.8% |
| Units for target profit | 40,910 |
| Operating profit at expected sales | $285,000 |
| Margin of safety | 19.2% |
| Degree of operating leverage | 5.21× |
Sales can fall 19.2% before the operation reaches break-even.
Interpreting the results
- Assumes a constant price, constant variable cost per unit and a fixed cost base within the relevant range.
- For multi-product businesses, use a weighted-average contribution margin based on the sales mix.
- A margin of safety below 10–15% indicates limited cushion against volume shortfalls.
Frequently asked questions
How is the break-even point calculated?
Break-even units equal fixed costs divided by contribution margin per unit (price minus variable cost per unit). Break-even revenue equals fixed costs divided by the contribution margin ratio.
What is the margin of safety?
The margin of safety is the percentage by which expected sales exceed break-even sales. A 20% margin of safety means sales could fall 20% before the business records an operating loss.
Does break-even analysis work for multiple products?
Yes, using a weighted-average contribution margin based on the expected sales mix. The result is only valid while the mix holds, so test alternative mixes when products carry very different margins.
Related calculators
- Contribution Margin Calculator: Contribution-format income statement, CM ratio and operating leverage.
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- Gross Margin & Markup Converter: Convert between cost, price, gross margin and markup.
- Operating Leverage (DOL) Calculator: Degree of operating, financial and total leverage with a sales-change test.
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