Break-even analysis answers the most basic question in any business plan: how much do I have to sell just to cover my costs? Every unit sold throws off a contribution margin — its price minus the variable cost to make it — and those margins stack up to pay off your fixed costs. The point where they're fully covered is break-even = fixed costs ÷ contribution margin. Past it, each sale's margin is pure profit; short of it, you're running a loss.
Reviewed: June 20, 2026 · Author: Naveen P N, Founder — AI Calculator · Verified against: standard contribution-margin break-even formulas, recomputed in code. Not financial advice.
The break-even formulas
The contribution margin per unit is what's left of each sale after its own variable cost — the cash that goes toward fixed costs and then profit. Dividing fixed costs by that margin gives the unit count at break-even; multiplying by price (or dividing fixed costs by the margin ratio) gives the revenue. The margin ratio, CM ÷ price, tells you how many cents of every sales dollar are available to cover fixed costs.
Worked example — $10,000 fixed, $50 price, $30 variable
Scenario: fixed costs $10,000, selling price $50/unit, variable cost $30/unit.
You need to sell 500 units — $25,000 of revenue — before the business turns a profit; unit 501 drops $20 to the bottom line. See how each lever moves it: cut the price to $40 (margin $10) and break-even doubles to 1,000 units; double fixed costs to $20,000 and it also doubles to 1,000; but trim the variable cost to $25 (margin $25) and it falls to just 400 units. That's why pricing power and lean variable costs matter so much for a small business.
Frequently Asked Questions
The sales volume where revenue exactly covers costs. Units = fixed costs ÷ contribution margin.
Price − variable cost. At $50 price, $30 cost it's $20/unit, a 40% ratio.
Units × price (500 × $50 = $25,000), or fixed costs ÷ margin ratio ($10,000 ÷ 0.40).
Higher price, lower variable cost, or lower fixed costs. Var $30→$25 cuts it 500→400 units.
Assumes constant price/cost and fixed costs. Real life has discounts, stepped costs, product mix.