Break-Even Calculator

A break even calculator tells you how many sales you need before your business stops losing money. Enter your fixed costs for a week, month or year, the variable cost of each unit and your selling price, and our free tool works out the break-even point in units and in pounds of sales. It also shows your contribution per unit and contribution ratio, your margin of safety against a sales forecast, how many units you need to hit a profit goal, and a clear cost and revenue chart with the break-even point marked. Move the slider to see profit or loss at any sales volume. Everything runs in your browser, so your figures stay private.

How to use the Break-even

1. 1 Pick a periodChoose per week, month or year, and keep every figure to that same period. Monthly is the most common choice for a small business.
2. 2 Enter your fixed costsAdd up the costs that do not change with sales: rent, business rates, salaries, insurance, loan repayments, software and so on.
3. 3 Enter the variable cost and price per unitThe variable cost is what each extra sale costs you, such as materials, packaging and card fees. Use your selling price excluding VAT.
4. 4 Read the break-even pointThe headline shows how many units you must sell, rounded up, and the sales value that represents. The chart shows where revenue overtakes total cost.
5. 5 Test your forecast and goalsAdd expected sales to see your margin of safety, add a profit goal to see the units needed, and drag the slider to try other volumes.

What the break-even point means

The break-even point is the level of sales at which total revenue exactly equals total costs, so the business makes neither a profit nor a loss. Below it, every period ends in the red. Above it, each extra sale adds to profit. Knowing the number turns a vague worry about whether the business is doing well enough into a clear target you can track week by week.

It is especially useful before you commit to something new: opening a shop, taking on a member of staff, signing a lease for a larger unit, launching a product or setting prices for a new service. Change the fixed costs to reflect the new commitment and you can see straight away how many more sales it will take to pay for itself.

Fixed costs, variable costs and contribution

Break-even analysis depends on splitting your costs into two groups. Fixed costs stay the same whatever you sell in the period: rent, business rates, salaried staff, insurance, accountancy fees, phone and broadband, software subscriptions, vehicle leases and loan repayments. Variable costs rise with every unit you sell: stock or raw materials, packaging, postage, card and marketplace fees, sales commission and hourly labour that is only paid when there is work.

Contribution is the selling price minus the variable cost of one unit. It is the amount each sale contributes towards paying the fixed costs, and once those are covered, towards profit. If you sell a product for £20 and it costs £8 to make and send, each sale contributes £12. The contribution ratio, here 60%, is the share of each pound of sales that goes towards fixed costs and profit.

Some costs are partly fixed and partly variable, such as energy for a workshop or a phone contract with a base charge and usage on top. Split them as best you can, or put them in fixed costs to be on the cautious side. The answer only needs to be close enough to guide a decision.

The break-even formulas

The calculator uses the standard formulas found in any management accounting textbook. You can check the results by hand with a few lines of arithmetic.

• Contribution per unit = price per unit - variable cost per unit.
• Contribution ratio = contribution per unit / price per unit.
• Break-even units = fixed costs / contribution per unit, rounded up to a whole unit.
• Break-even revenue = fixed costs / contribution ratio.
• Margin of safety = (expected sales - break-even sales) / expected sales x 100.
• Units for a profit goal = (fixed costs + profit goal) / contribution per unit.
• Profit at any volume = units x contribution per unit - fixed costs.

Reading the cost and revenue chart

The chart plots money against the number of units sold. The dashed grey line is your fixed costs, flat because they do not change with volume. The dark line is total cost, which starts at the fixed cost level and rises by the variable cost of each unit. The green line is revenue, which starts at zero and rises by the selling price of each unit.

Where the revenue line crosses the total cost line is the break-even point, marked with a dot. The shaded area to the left, between the two lines, is loss; the shaded area to the right is profit. The steeper the revenue line compared with the cost line, the larger your contribution per unit and the faster profit builds once you pass break-even. You can download the chart as an SVG file to drop into a business plan, a funding application or a presentation, and it stays sharp at any size.

Margin of safety and why it matters

The margin of safety tells you how far sales could fall from your forecast before you start making a loss. If you expect to sell 600 units a month and break even at 375, your margin of safety is 225 units, or 37.5% of forecast sales. A quiet month, a lost customer or a price war would have to cut sales by more than that before the business loses money.

A small margin of safety is a warning sign. It means a modest dip in trade could push you into a loss, and it leaves little room for unexpected costs. You can increase it by raising prices, cutting variable costs, reducing fixed costs or selling more. The calculator lets you test each lever: change one figure at a time and watch how the break-even point and margin of safety move.

Lenders and investors often ask about break-even and margin of safety in a business plan. Showing that you know your numbers, and that your forecast leaves a reasonable cushion, makes a plan far more convincing than a sales target on its own.

Limits of break-even analysis

The model assumes a single product, or an average across your range, with a fixed price and a constant variable cost per unit. Real businesses sell a mix of products at different margins, offer discounts, and get better prices from suppliers as volume grows. If you sell several products, use a weighted average price and variable cost based on your usual sales mix, or work out break-even for each product line separately.

Fixed costs are only fixed within a range. If sales double, you might need another member of staff or a larger van, which steps the fixed costs up. Break-even also ignores timing: you may pass break-even on paper and still run short of cash if customers pay on 60-day terms while suppliers want paying in 30. Use break-even alongside a cash flow forecast, not instead of one, and talk to an accountant before making a large commitment based on the figures.

Finally, keep VAT out of the calculation if you are VAT registered. Use prices and costs excluding VAT, because the VAT you collect is passed on to HMRC and the VAT you pay on costs is usually reclaimed. If you are not registered, include the VAT you pay on costs, because you cannot reclaim it.

Examples you can copy

Fixed costs per month     £4,500
Variable cost per unit    £8
Price per unit            £20
Contribution per unit     £12 (60%)
Break-even                4,500 / 12 = 375 units
Break-even revenue        4,500 / 0.6 = £7,500
Margin of safety at 600   225 units (37.5%)

(4,500 + 2,000) / 12 = 541.7  ->  542 units

Common mistakes to avoid

Frequently asked questions