Break-Even Point
How many units must sell before a business covers its costs.
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Formula
How the calculation works
Break-even asks how many units must sell before the fixed costs are covered. Only the margin on each unit counts towards that, which is the price minus the variable cost -- the money each sale leaves behind after paying for the thing itself. With 10,000 of fixed costs, a 25 price and a 15 variable cost, each unit contributes 10, so 1,000 units are needed.
The answer is rounded up, because a fraction of a unit cannot be sold. If the division gives 666.67, the break-even point is 667 units: at 666 you are still short, at 667 you have cleared it. The tool reports both the exact figure and the rounded one, so the arithmetic stays visible.
The guard is the important part. If the price does not exceed the variable cost, each sale loses money and no number of units will ever break even -- the fixed costs are simply unreachable. The tool stops rather than dividing by a zero or negative margin and returning a negative unit count, which would look like an answer and mean nothing.
Common mistakes
- Using the selling price instead of the per-unit margin, which understates the units needed by the size of the variable cost.
- Rounding the units down. At 666 units of a 667-unit break-even you are still losing money.
- Leaving the variable cost above the price and expecting a figure. There is no break-even point in that case, only a growing loss.
When to use it
- Use it to sanity-check a price before committing to fixed costs: it tells you the volume a price has to support before it earns anything.
- It assumes one product with a stable price and variable cost. A business selling several products at different margins needs a weighted contribution instead, which this does not do.
Worked example
With 10,000 of fixed costs at 25 a unit against 15 cost, 1,000 units break even.
Common questions
What if the price is below the cost?
Then every sale loses money and break-even never happens; the calculator stops instead of inventing a figure.
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