What is the Break Even?
Break-even is the sales volume at which total revenue equals total costs — the point where a business stops losing money. Below it you burn cash; above it, every additional unit contributes profit.
The key concept is contribution margin: price minus variable cost. That is what each unit contributes towards covering fixed costs.
Formula & worked example
Break-even units = Fixed costs / Contribution margin
Units for target profit = (Fixed costs + Target) / Contribution margin
Worked example: ₹2,00,000 of monthly fixed costs, ₹800 price and ₹450 variable cost → contribution of ₹350 per unit (43.8% margin). Break-even is 572 units, or ₹4.57 lakh of revenue. To earn ₹1,00,000 of profit you would need 858 units.
How to use this break even calculator
- Enter fixed costs: rent, salaries, software — anything you pay regardless of sales.
- Enter the selling price per unit.
- Enter variable cost per unit: materials, packaging, payment fees, shipping.
- Add a target profit to see the volume needed to hit it.
Smart tips
- Raising price lifts contribution margin faster than cutting variable cost, and needs no operational change.
- A low contribution margin means break-even is very sensitive to volume — dangerous in a downturn.
- Include your own salary in fixed costs. A business that only breaks even by not paying you is not breaking even.
- Recalculate whenever costs or price change. Break-even is a moving number, not a one-time exercise.
Frequently asked questions
How do I calculate break-even point?
Divide fixed costs by the contribution margin per unit (price minus variable cost). The result is the units you must sell to cover all costs.
What is contribution margin?
Selling price minus variable cost per unit — the amount each sale contributes towards fixed costs and then profit.
What is a good contribution margin?
It varies by industry: 20–30% is typical for retail, 40–60% for manufacturing, and 70–90% for software.
Should my salary be a fixed cost?
Yes. Excluding it produces an artificially low break-even and hides the fact that the business is not truly viable.
Want the theory behind the numbers? Read our business guides on the Money Blog.