How break-even works
Each unit you sell first pays for the variable cost of producing it, then contributes its remainder toward fixed costs. Once accumulated contributions equal fixed costs, you've broken even — every unit beyond that is profit.
Worked example
You produce a product with $50,000 in fixed costs (rent, salaries, software). Each unit sells for $100 and costs $40 to produce.
- Contribution margin = $100 − $40 = $60 per unit
- Break-even units = $50,000 ÷ $60 = 834 units
- Break-even revenue = 834 × $100 = $83,334
Selling fewer than 834 units puts you in the red. Selling 1,000 units yields (1,000 − 834) × $60 = $9,960 in operating profit.
FAQ
What counts as a fixed cost?
Costs that don't change with volume — rent, salaries, insurance, software subscriptions, equipment leases. Anything you'd pay even if you sold zero units.
What if I have multiple products?
Compute a weighted-average contribution margin across your product mix, then divide fixed costs by it. This calculator handles the single-product case; for a full multi-product analysis you'll want a spreadsheet.
Does this include taxes?
No — break-even is computed on operating profit before tax. Add expected tax in your fixed costs if you want a post-tax break-even.