Break-Even Calculator

How to use the break-even calculator

Enter three numbers: your fixed costs per month, the price you charge per unit and the variable cost of producing or delivering one unit. The calculator shows how many units you need to sell each month to cover all costs, and how much revenue that equals. Add a target profit to see the volume you need to hit it, and your expected monthly sales to see your profit and margin of safety.

A “unit” is whatever you sell: a product, a subscription month, a billable hour or a booking. Keep it consistent. If you charge per month, use the monthly price and the monthly cost of serving one customer.

The break-even formula

Break-even units = Fixed costs ÷ (Price per unit − Variable cost per unit)

The part in brackets is the contribution margin: what each sale leaves over, after its own costs, to pay for rent, salaries and everything else that does not change with volume. Once enough units have covered the fixed costs, every further unit is profit.

Break-even revenue = Fixed costs ÷ Contribution margin ratio

The contribution margin ratio is the contribution margin divided by the price. It tells you how many cents of every dollar of sales are left to cover fixed costs. Use the revenue version when you sell many products at different prices and it makes more sense to think in sales than in units.

Worked example: a subscription coffee box

A two-person startup sells a monthly coffee subscription for $49. Beans, packaging, shipping and payment fees come to $19 per box. Rent for a small roastery, two part-time salaries, software and insurance add up to $12,000 a month.

Here is what profit looks like at different volumes. Notice that each box beyond 400 adds exactly $30, and each box short of it costs $30.

At 550 boxes the margin of safety is 27%: sales can drop by just over a quarter before the business loses money. To earn a $5,000 monthly profit, the company needs 567 boxes, because (12,000 + 5,000) ÷ 30 = 566.7.

Fixed or variable? Sorting your costs

Most errors in a break-even analysis come from putting costs in the wrong bucket. A simple test: if you sold nothing next month, would you still pay it? Then it is fixed.

• Usually fixed: rent, salaries, insurance, accounting, software subscriptions, loan repayments, a baseline marketing budget.
• Usually variable: materials, packaging, shipping, card and marketplace fees, sales commissions, usage-based hosting, the cost of a freelancer paid per job.
• Mixed: some costs have a fixed base and a variable part, such as a phone plan with overage charges or a warehouse that bills a monthly fee plus a fee per order. Split them.

Fixed costs stay fixed only up to a certain point. Once the coffee startup moves beyond roughly 1,500 boxes a month, it might require a larger roaster and a third employee. Those additions push fixed costs up a level and create a new break-even point. Whenever you plan to hire someone or relocate, work through the numbers again.

Common mistakes

• Leaving out the founders’ pay. If you need a salary to live on, it is a fixed cost. A business that only breaks even because the founders work for free has not broken even.
• Using list price instead of the real price. Discounts, free trials, refunds and churn lower what you actually collect per unit. Use the average price customers pay.
• Forgetting payment fees. Card processing typically takes around 3% of each sale plus a fixed fee per transaction. On a low-priced product that is a big share of the margin.
• Counting customer acquisition as fixed. If you spend $15 in ads to win each order, that money scales with sales. Treat it as a variable cost, or you will overestimate your margin.
• Treating break-even as a one-off. Prices, costs and suppliers change. A break-even point from last year is often wrong today.

Three ways to lower your break-even point

The formula has three inputs, so there are three levers. Try each in the calculator above to see which one moves your number most.

1. Raise the price. In the example, a $4 increase to $53 lifts the contribution margin to $34 and drops break-even from 400 to 353 boxes. Price is often the strongest lever, because every dollar goes straight to margin.
2. Cut the variable cost. A cheaper shipping deal that saves $2 a box raises the margin to $32 and cuts break-even to 375 boxes.
3. Cut fixed costs. Dropping $1,500 of monthly overhead brings break-even down to 350 boxes. This is the lever most founders reach for first, but there is usually less room here than in pricing.

Break-even for services and software

For a service business, the unit is usually an hour or a project. Your variable cost per hour might be close to zero if you do the work yourself, which makes the contribution margin almost the whole price. The limit then is capacity: if break-even needs 180 billable hours a month and one person can bill about 120, you need to hire or raise your rate.

For a subscription or SaaS business, use the monthly price per customer as the unit price and hosting, support and payment fees per customer as the variable cost. Break-even units become the number of paying customers you need. Churn matters here: if 5% of customers leave every month, you have to win that many again just to stay at break-even.

Where break-even fits in your business plan

Investors and banks look for a break-even point in the financial section of a plan, along with a date for reaching it. That date depends on how fast sales grow and on how much cash you have until then. Use the burn rate and runway calculator to check that your cash lasts until you reach break-even, and the startup cost calculator to size the fixed costs you start with.

In Cuttles, the budget calculates break-even and runway for you month by month as you add revenue and costs, and puts the result into your business plan with charts. Every plan starts with a 7-day free trial.

This calculator gives a simple single-product estimate. It does not account for taxes, financing costs or changes in the product mix, and it is not financial advice.