How this calculator works
- Step 1Price₹250.00What one unit sells for.
- Step 2Variable cost₹150.00What one more unit costs you.
- Step 3Contribution₹100.00What each sale adds towards fixed costs.
- Step 4Break-even600 unitsEnough contributions to cover ₹60,000.00.
Every unit you sell earns its price and costs its variable cost. The difference, the contribution, goes towards fixed costs such as rent and salaries.
Break-even is the volume where those contributions exactly cover the fixed costs. Below it you make a loss; above it, each extra unit adds its full contribution to profit.
A target profit works the same way: add the profit to the fixed costs and divide by the contribution per unit.
Worked example: a small workshop
- Contribution
price − variable cost- Break-even units
fixed costs ÷ contribution- Target units
(fixed costs + target profit) ÷ contribution
- FFixed costs for the month ₹60,000.00
- pSelling price per unit ₹250.00
- vVariable cost per unit ₹150.00
- Contribution₹250.00 − ₹150.00₹100.00
- Break-even units₹60,000.00 ÷ ₹100.00600
- Break-even sales600 × ₹250.00₹1,50,000.00
- Units for the target(₹60,000.00 + ₹20,000.00) ÷ ₹100.00800
The workshop needs 600 sales a month, or ₹1,50,000.00, before it earns anything. To keep ₹20,000.00, it needs 800 sales.
Profit at different volumes
At half the break-even volume the workshop loses half its fixed costs. Past break-even, each extra sale adds ₹100.00 of profit.
What moves the break-even point
- Price up to ₹275.00480 unitsContribution rises to ₹125.00.
- Fixed costs up to ₹75,000.00750 unitsMore to cover with the same contribution.
- Variable cost up to ₹175.00800 unitsContribution falls to ₹75.00.
A small change in price or variable cost moves the break-even more than you might expect, because it changes the contribution on every unit.
Read the result
The headline is the number of whole units to sell; the table adds the sales value and the contribution margin.
Contribution margin is the share of each rupee of sales left after variable costs. Break-even sales equal fixed costs divided by that share.
The exact volume can be fractional. The headline rounds it up, because selling one unit fewer would leave a small loss.
Assumptions and limits
- Straight linesPrice and variable cost per unit stay the same at every volume.
- Everything sellsUnits made are units sold; there is no unsold stock.
- Before taxIncome tax on profit is not deducted. Keep GST out of price and costs.
- One periodFixed costs and target profit cover the same month or year.
Real costs can step up, for example when you hire another person or rent more space. Re-run the calculation for each level of fixed costs.
For several products, this tool needs one average price and variable cost. A weighted mix is outside its scope.
Related business tools
Break-even needs a price and a cost per unit. Margins and payback are the neighbouring questions.
To set a price from cost and margin, use the margin and markup calculator. For how long an investment takes to repay, try the payback period calculator, and for commission on sales, the commission calculator.
Common mistakes
Mistake: Leaving your own salary out of fixed costs.
Instead: Include what you need to pay yourself, or the business only looks viable.
Mistake: Forgetting marketplace commission and payment fees.
Instead: Count every per-sale charge in the variable cost.
Mistake: Mixing a yearly rent with a monthly target.
Instead: Put fixed costs and target profit on the same period.
Mistake: Using a GST-inclusive price with GST-exclusive costs.
Instead: Use the same basis, usually before GST.
Checking the method
Every golden case is re-solved as an intersection of revenue and cost lines, and two OpenStax examples are reproduced.
The formulas follow OpenStax Principles of Managerial Accounting. An independent script intersects the revenue and cost lines exactly and searches for the smallest whole volume, matching every case listed in the sources.
Read how we test our calculators, or browse more money calculators.