The Break-Even Formulas
Break-Even in Units
Fixed Costs ÷ (Price − Variable Cost per Unit)
Contribution Margin
Selling Price − Variable Cost per Unit
Break-Even in Revenue
Fixed Costs ÷ Contribution Margin Ratio
Real Business Examples
Online Course Creator
Fixed Costs: $3,000/mo (tools, ads, hosting)
Price: $197
Variable Cost: $7 (payment processing)
Contribution Margin: $190
Break-Even: 16 courses/month = $3,152 revenue
Coffee Shop
Fixed Costs: $8,500/mo (rent, staff, equipment)
Price: $5.50 avg ticket
Variable Cost: $1.80 (ingredients, cups)
Contribution Margin: $3.70
Break-Even: 2,297 drinks/month = $12,635 revenue
SaaS Product
Fixed Costs: $15,000/mo (dev, hosting, support)
Price: $49/mo subscription
Variable Cost: $4 (hosting per user)
Contribution Margin: $45
Break-Even: 334 subscribers
Frequently Asked Questions
What is the break-even point formula?
Break-Even Point (units) = Fixed Costs ÷ (Price per Unit − Variable Cost per Unit). The denominator is called the Contribution Margin. Example: $10,000 fixed costs ÷ ($50 price − $20 variable cost) = 333 units.
What is contribution margin?
Contribution Margin = Selling Price − Variable Cost per Unit. It represents how much each unit sold contributes to covering fixed costs. A $50 product with $20 variable cost has a $30 contribution margin.
How do I calculate break-even in dollars?
Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio. Contribution Margin Ratio = (Price − Variable Cost) ÷ Price. Example: $10,000 ÷ (($50−$20)÷$50) = $10,000 ÷ 0.60 = $16,667 in revenue.
What happens above the break-even point?
Every unit sold above break-even generates pure profit equal to the contribution margin. If your contribution margin is $30/unit and you sell 100 units above break-even, you profit $3,000.
How does break-even analysis help business decisions?
It helps you set minimum sales targets, evaluate pricing changes, assess the impact of cost increases, and decide whether a new product or location is viable before investing.