How to calculate break-even
The break-even point tells you how many units you must sell until your revenue covers all costs. This guide explains the break-even formula, the condition that price must exceed variable cost, what the result means in practice, and gives a worked example matching Klar’s break-even calculator.
The formula: fixed costs ÷ contribution margin
Break-even units = fixed costs ÷ (price per unit − variable cost per unit). The gap between price and variable cost is the contribution margin: it covers fixed costs, then turns into profit beyond the break-even point.
A worked example
Using the calculator’s values: fixed costs 10,000, price 50, variable cost 30. Contribution margin = 50 − 30 = 20, break-even units = 10,000 ÷ 20 = 500 units, and break-even revenue = 500 × 50 = 25,000.
The price-above-variable-cost condition
If the price equals or falls below the variable cost, there is no positive contribution margin and therefore no break-even point. The calculator blocks this case with an error on the price per unit.
What the result means
Below 500 units you lose money; above it you make a profit. The result can be fractional (like 500.5), and the equivalent whole number is used for planning. Beyond break-even, every extra unit adds the full contribution margin to profit.
Key takeaways
- Break-even units = fixed costs ÷ (price per unit − variable cost).
- Contribution margin = price per unit − variable cost.
- Break-even revenue = break-even units × price per unit.
- The price must exceed the variable cost, otherwise there is no break-even point.
Frequently asked questions
What if I never reach break-even?
You are losing money because revenue does not cover costs. Try raising the price, cutting costs or increasing sales, and watch how break-even units change with each move.
Do fixed costs include salaries?
Yes, if they are fixed and do not change with sales. Commissions and variable payments belong in the variable cost per unit.
Related calculators
Break-even calculator
Find how many units you must sell to cover fixed and variable costs and reach break-even.
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