How many units must you sell before you make a profit? Enter fixed costs, selling price and variable cost per unit, and this free break-even calculator gives the break-even point in units and sales, the contribution margin and CM ratio, units needed for a target profit and your margin of safety, plus a cost-volume-profit chart.
Break-even formulas
Worked example
A small business has monthly fixed costs of Rs 150,000 and sells a product for Rs 1,200 that costs Rs 700 to make and ship. Each sale contributes Rs 500, a CM ratio of 41.7%. It breaks even at 150,000 ÷ 500 = 300 units (Rs 360,000 of sales). To earn Rs 100,000 profit it needs 500 units. If it expects to sell 450, its margin of safety is 33%: sales could fall by a third before it makes a loss.
Margin vs markup
These are often confused. A product bought for 700 and sold for 1,200 has a markup of 71.4% (on cost) but a profit margin of 41.7% (on price). Price using markup, but judge profitability with margin.
Frequently asked questions
What is the break-even point?
It is the sales level at which total revenue equals total costs, so profit is zero. Above it you make a profit; below it, a loss.
How do I calculate break-even units?
Divide total fixed costs by the contribution margin per unit (selling price minus variable cost per unit). Rs 150,000 ÷ Rs 500 = 300 units.
What is contribution margin?
The amount each unit contributes towards fixed costs and then profit: selling price minus variable cost per unit. As a percentage of price it is the contribution margin ratio.
What is the margin of safety?
How far expected sales can fall before you reach break-even, as an amount, units or a percentage of expected sales. A higher margin of safety means lower risk.
What is the difference between markup and margin?
Markup is profit as a percentage of cost; margin is profit as a percentage of selling price. A 100% markup equals a 50% margin.
Related tools
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