Break-Even Calculator
How many sales you need before the business makes a penny of profit, and how much of a safety margin your current sales give you.
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- Formula and worked example included
Break-Even Calculator
Enter your figures to see results.
What is a break-even point, in plain terms?
Your break-even point is the number of sales at which you have covered all your costs and start making a profit. Every sale contributes the difference between its price and what it directly costs you; divide your fixed costs by that contribution and you have the number of sales needed. A business with £60,000 of fixed costs selling at £45 with £18 of variable cost per unit breaks even at 2,223 units.
How to use this calculator
- Add up your fixed costs for the year: rent, salaries, insurance, software, loan repayments, anything you pay whether or not you sell.
- Enter your selling price per unit and the variable cost of each unit: materials, stock, packaging, payment fees, delivery.
- Add your current or forecast sales to see profit at that level and how far sales could fall before you lose money.
What your result means
How to read the figure, what counts as normal, and what to do about it.
Why break-even is the first number a new business needs
It turns a vague plan into a concrete target. "We need to sell 43 units a week" is something you can test against footfall, web traffic or the number of sales calls you can make. If the break-even volume is more than the market can plausibly give you, the plan needs a higher price, lower costs or a different model before you spend anything.
It is also the quickest way to see what a change would do. Raising the price by £5 or trimming the variable cost by £3 both change the contribution per unit and therefore the volume needed. The calculator makes each scenario a few seconds' work.
Reading the margin of safety
| Margin of safety | What it means |
|---|---|
| Negative | Below break-even: every month at this volume loses money. |
| 0 to 15% | Fragile. A quiet month or one lost customer tips you into loss. |
| 15 to 30% | Reasonable for a young business; keep fixed costs from creeping up. |
| Over 30% | Comfortable. You can absorb a downturn or invest in growth. |
Fixed or variable? Where costs really sit
The split is not always obvious. Staff on salaries are fixed; staff paid per shift are variable. A delivery contract with a monthly minimum is fixed up to the minimum and variable above it. Card processing is variable; the terminal rental is fixed. When in doubt, ask whether the cost would still arrive if you sold nothing next month. If yes, it is fixed.
Fixed costs are the dangerous ones. They are easy to add (a nicer office, another subscription, a hire made in optimism) and hard to remove, and every pound added raises the break-even point.
Worked example: a candle maker moving to a unit
Renting a small workshop, a part-time assistant, insurance, website and accountancy bring fixed costs to £60,000 a year. Candles sell for £45 and cost £18 each in wax, wick, glass, packaging and postage.
Contribution: 45 − 18 = £27 per candle (60% contribution margin).
Break-even: 60,000 ÷ 27 = 2,223 candles, or about 43 a week, for £100,000 of revenue.
At a forecast of 3,000 candles the business makes £21,000 profit with a 26% margin of safety. To make £10,000 profit it needs 2,593 sales; every £1 taken off the unit cost lowers the break-even by about 80 candles.
Frequently asked questions
What is a good break-even point?
One you can reach comfortably with the demand available. As a rule of thumb, forecast sales should be at least 20 to 30% above break-even before you commit to fixed costs.
How do I lower my break-even point?
Raise the price, cut the variable cost per unit, or cut fixed costs. Because contribution is a difference, small changes in price or unit cost have a large effect: on a £45 candle with £27 contribution, a £3 price rise lowers break-even by 10%.
Can I use this for a service business?
Yes. Define the unit as a billable hour, a job or a client, with the variable cost being what that unit directly costs (subcontractor time, materials, travel).
Is break-even the same as cash break-even?
Not quite. Break-even here is an accounting measure. Cash break-even also has to cover loan capital repayments, VAT timing and stock bought ahead of sales, so it usually arrives later.
The maths behind this calculator
For anyone who wants to check the working or rebuild it in a spreadsheet.
The formulas
Contribution per unit = Price − Variable cost per unit Contribution margin (%) = Contribution ÷ Price × 100 Break-even units = Fixed costs ÷ Contribution per unit Break-even revenue = Break-even units × Price Margin of safety (%) = (Expected units − Break-even units) ÷ Expected units × 100 Units for a target profit = (Fixed costs + Target profit) ÷ Contribution per unit
Assumptions and limits
- Price and variable cost per unit are constant across the volume range. Bulk discounts on materials or price promotions change the contribution and should be modelled separately.
- Fixed costs are truly fixed for the period. Step costs (a second employee, bigger premises) create a new, higher break-even once triggered.
- Single product or an average unit. For a mix of products, use a weighted average contribution or model each line.
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