Business Software
The break-even formula in plain language — fixed costs, variable costs and contribution margin — with a worked example, common mistakes and when break-even analysis is worth doing.
Your break-even point is the amount you must sell before the business stops losing money on a product or service. Sell less and you are in loss; sell more and you are in profit. It is one of the simplest and most useful numbers in business planning, because it turns a vague question — "will this work?" — into a specific one: "can we realistically sell this many?"
Keep GST out of the numbers
GST you collect is not your revenue and GST you pay on purchases is generally recoverable as input credit, so use prices and costs excluding GST. If you only have GST-inclusive figures, strip the tax out first.
Break-Even Units = Fixed Costs ÷ (Selling Price per Unit − Variable Cost per Unit)
In plain language: each unit you sell earns you its price, but part of that goes straight to the variable cost of making and delivering it. What is left — the contribution margin — is what you have available to pay off your fixed costs. Break-even is simply how many of those contributions it takes to cover the fixed costs.
| Term | Formula | What it tells you |
|---|---|---|
| Contribution margin per unit | Selling price − variable cost | Money each unit contributes towards fixed costs |
| Contribution margin % | Contribution margin ÷ selling price |
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What is the break-even point?
It is the sales volume at which your total revenue exactly equals your total costs — fixed and variable combined. Below it you make a loss; above it, every additional unit adds profit.
What is the break-even formula?
Break-even units = fixed costs ÷ (selling price per unit − variable cost per unit). The denominator is the contribution margin: the amount each unit sold contributes towards covering fixed costs.
Why is break-even rounded up to a whole unit?
You cannot sell part of a unit. If the formula gives 166.67, selling 166 units still leaves you slightly short, so you need 167 to actually cover your costs.
How do I calculate break-even revenue?
Multiply break-even units by the selling price per unit. Alternatively, divide fixed costs by the contribution margin percentage (contribution margin ÷ selling price).
Does break-even analysis work for a service business?
Yes, if you can define a unit — for example an hour of billable work, a project or a monthly retainer — and estimate the variable cost of delivering it. The logic is identical.
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| Share of each sale left after variable costs |
| Break-even units | Fixed costs ÷ contribution margin per unit (rounded up) | Units to sell to cover all costs |
| Break-even revenue | Break-even units × selling price | Sales value at which you neither profit nor lose |
Suppose you sell a product for ₹500 per unit. Each unit costs ₹200 in materials, packaging and shipping. Your fixed costs are ₹50,000 a month for rent, software and a part-time assistant.
So you need to sell 167 units a month — ₹83,500 in sales — to cover everything. Now suppose you expect to sell 250 units. Your contribution is 250 × ₹300 = ₹75,000, minus ₹50,000 fixed costs, giving a profit of ₹25,000. Your margin of safety is 250 − 167 = 83 units, or 33.2% of expected sales: sales could fall by about a third before you start losing money. You can check these figures with the free break-even calculator.
If pricing is the lever you want to pull, the selling price and margin calculator shows what a given price does to your margin, and it pairs naturally with break-even. If the answer is that you need to sell more, the next question is how many leads and deals that takes — covered in our guide to calculating sales targets.
Break-even analysis is a planning simplification: it assumes a constant price and constant variable cost per unit. Treat the result as a guide to sanity-check a plan, not as a forecast.
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