Break-even calculator

What this calculator does

The break-even calculator tells you how much you need to sell before your business stops making a loss and starts making a profit. It works out two numbers from three inputs: your break-even volume (units you must sell) and your break-even revenue (the turnover those units represent).

It is one of the most useful figures a director can carry in their head. It turns a vague worry — “are we selling enough?” — into a hard target you can measure against weekly. It also tells you, before you commit, whether a new product line, a price change or a fresh round of fixed overhead can realistically pay for itself. Use it per month for trading decisions, or per year when you are pricing a contract or building a budget.

How to use it

Enter three figures for the period you care about:

• Fixed costs — costs that do not move with sales volume: rent, salaries, software, insurance, finance repayments. Add these up for the month or year.
• Selling price per unit — what one customer pays for one unit of your product or service (exclude VAT).
• Variable cost per unit — what it costs you to deliver that one unit: materials, subcontractors, payment fees, delivery.

The calculator returns the number of units you must sell, and the revenue that represents, to break even. Keep your period consistent: if fixed costs are monthly, the answer is your monthly target.

The formula in plain English

Every unit you sell earns a contribution — the selling price minus the variable cost. That contribution is what is left over to chip away at your fixed costs. Once your total contribution equals your fixed costs, you have broken even.

Contribution per unit = Price − Variable cost per unit
Break-even units = Fixed costs ÷ Contribution per unit
Break-even revenue = Break-even units × Price

The ratio of contribution to price is your contribution margin. A thin margin means you have to sell a lot of units to cover the same fixed costs; a fat margin means each sale pulls more weight. If your variable cost ever exceeds your price, contribution is negative and there is no break-even — you lose money on every sale.

A worked example

Say you run a small print firm. Fixed costs are £8,000 a month (rent, two salaries, software). You sell a standard job for £60, and the materials and machine time cost you £24 per job.

• Contribution per job = £60 − £24 = £36
• Break-even volume = £8,000 ÷ £36 = 223 jobs a month (round up — you cannot sell a partial job)
• Break-even revenue = 223 × £60 = £13,380 a month

Job 224 onwards earns you £36 of profit each. If you raised the price to £66 with no change in cost, contribution rises to £42 and break-even drops to 191 jobs — a price rise of 10% cut the volume target by 14%. That sensitivity is exactly why break-even is worth modelling before you change anything.

Reading the result and what it tells you

Compare the break-even figure to what you actually sell. If you clear it comfortably each month, you have headroom to invest, hire or absorb a quiet spell. If you are scraping it, you are one bad month from a loss and should look hard at price, cost or fixed overhead before adding more.

Break-even is also a sanity check on borrowing. New finance usually adds to your fixed costs (the repayment) — so it raises your break-even point. The right question is whether the borrowing also lifts sales or margin enough to clear that higher bar. A short-term working-capital facility that funds a profitable order can pay for itself many times over; the same money spent on standing overhead simply pushes the target up. Model both with the return on borrowed capital calculator before you decide.

Limitations to keep in mind

Break-even is a clean model of a messy reality, so treat it as a guide rather than gospel:

• It assumes one price and one variable cost. Real businesses sell a mix; for a multi-product firm, use a blended average contribution or model each line separately.
• It assumes fixed costs stay fixed. In practice they step up — hire a third person and your fixed costs jump, moving the line.
• It ignores timing. You can be break-even on paper but short of cash if customers pay late. Pair it with a working capital calculator and a cash-flow forecast.

This is educational, not financial advice — but as a planning lever, knowing your number is half the battle.