About this calculator
Break-even analysis tells you how many units you need to sell to cover fixed costs. It’s the most fundamental question for any new product, service, or business: at this price and cost structure, when do we stop losing money? The answer comes from a simple formula but reveals deep truths about whether the business model works.
The formula
Break-even units = Fixed costs / Contribution margin per unit, where contribution margin = price − variable cost per unit. If fixed costs are $20,000/month and each unit contributes $40 (price $60 − variable cost $20), you break even at 500 units/month.
Fixed vs variable costs
- Fixed — rent, salaries, insurance, software subscriptions. Costs that don’t change with sales volume.
- Variable — materials, shipping, payment processing, hourly labor. Costs that scale with each unit sold.
- Some costs are semi-variable — e.g., utilities have a fixed base plus usage. For modeling, classify as the larger component.
Why contribution margin is the key number
Contribution margin determines how fast you escape losses. At 50% contribution margin, every $1 of revenue above break-even is $0.50 of profit. At 10%, only $0.10. High-CM businesses (SaaS, IP licensing) reach profitability with modest volume. Low-CM businesses (commodities, food service) need massive scale to clear fixed costs.
Operating leverage trade-off
High fixed cost / low variable cost = high operating leverage. SaaS is the extreme: $5M in salaries, near-zero per-customer cost. Below break-even you bleed; above break-even, profit explodes. Low-leverage businesses (services) scale revenue and costs together — less downside but less upside too.
When break-even analysis lies
The model assumes constant prices and constant costs. In reality, prices fall as you compete; variable costs change with volume (good and bad — bulk discounts vs capacity constraints); fixed costs step up as you add staff or rent. Treat break-even as a useful first approximation, not a prediction.