Break-even point formula for a small business
The break-even point is where revenue covers fixed costs plus variable costs, resulting in zero operating profit in the chosen period. For a product business, the formula is break-even units = fixed costs ÷ (selling price per unit − variable cost per unit). The denominator is the contribution per unit; it must be positive. When units can only be sold whole, the minimum practical quantity is rounded up.
Example: $2,000 fixed costs and $20 contribution per unit
Suppose monthly fixed costs are $2,000, you sell at $50, and each unit costs $30 to make or deliver. Contribution is $20 per unit, so break-even requires 100 units, generating $5,000 in revenue. At 150 units, sales are $7,500 and costs total $6,500, leaving $1,000 in operating profit before taxes and other omitted expenses.
Calculate units needed for a target profit
The goal formula is (fixed costs + target profit) ÷ contribution per unit, rounded up to whole units. For the same example, a $1,000 target profit requires 150 units. The tool also calculates contribution margin as contribution per unit divided by selling price, multiplied by 100.
Important assumptions
All amounts must refer to the same period. Fixed costs stay constant in the modeled range, unit price and unit variable costs do not change with volume, and the business sells one product or an equivalent unit mix. This is a planning estimate, not accounting, tax or financial advice. Shipping, payment fees and overhead must be entered in the appropriate cost input if they apply.
Questions
What if unit variable cost equals the selling price?
There is no positive contribution to cover fixed costs. The calculator explains this rather than returning a misleading number.
What is the difference between break-even and profit margin?
Break-even describes the minimum sales quantity to cover costs; profit margin measures profit as a percentage of revenue. For pricing from markup or margin, use our Profit Margin Calculator.
Methodology: this unit-cost approach follows the U.S. Small Business Administration's break-even explanation. The result is not a forecast of demand.