Free Break-Even Analysis Calculator
Find out how much you need to sell to cover your costs, and when your business becomes profitable. Calculate your break-even point in units or dollars instantly with our free tool.
Use this free break-even calculator to identify your business's profitability point. Adjust fixed and variable costs, simulate different pricing models, and visualize profitability with interactive charts. Ideal for startups, retailers, and small business owners. No signup required.
What Is Break-Even Analysis?
Break-even analysis is a financial calculation that determines the point at which a business's total revenue equals its total costs. At this point, the business is neither making a profit nor incurring a loss.
Fixed Costs
Costs that remain constant regardless of production volume, such as rent, salaries, insurance, and equipment depreciation.
Variable Costs
Costs that change directly with production volume, such as raw materials, direct labor, and packaging.
Calculating your break-even point is essential for understanding when your business becomes profitable. Our free calculator does this instantly, but understanding the process helps you make better business decisions.
The Break-Even Point Formula
The basic break-even formula is straightforward:
Break-Even Point (Units) = Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit)
This formula tells you exactly how many units you need to sell to cover all your costs. The difference between selling price and variable cost per unit is called the "contribution margin" - the amount each sale contributes toward covering fixed costs.
To calculate break-even in dollars: Multiply the break-even units by your selling price per unit, or use: Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio.
Why Every Startup Needs a Break-Even Analysis
Break-even analysis is crucial for startups because it helps you:
- Validate Business Feasibility: Determine if your business model is viable before investing significant time and money
- Set Realistic Goals: Understand minimum sales targets needed to survive and thrive
- Secure Funding: Show investors when your business will become profitable
- Make Pricing Decisions: Understand how price changes affect profitability
- Plan for Growth: Identify when you can afford to invest in expansion
- Assess Risk: Understand how sensitive your business is to sales fluctuations
Accurately distinguishing between fixed and variable costs is fundamental to break-even analysis. Misclassifying costs leads to inaccurate calculations and poor business decisions.
Fixed Costs
Costs that remain constant regardless of production or sales volume:
- ✓ Rent and lease payments
- ✓ Salaries (fixed portion)
- ✓ Insurance premiums
- ✓ Equipment leases
- ✓ Utilities (base charges)
- ✓ Marketing (fixed campaigns)
- ✓ Software subscriptions
Variable Costs
Costs that change directly with production or sales volume:
- ✓ Raw materials
- ✓ Direct labor (piece-rate)
- ✓ Shipping and delivery
- ✓ Sales commissions
- ✓ Credit card processing fees
- ✓ Packaging materials
- ✓ Production supplies
💡 Pro Tip:
Some costs are "semi-variable" - they have both fixed and variable components. For example, utilities may have a base charge (fixed) plus usage charges (variable). For break-even analysis, include the fixed portion in fixed costs and the variable portion in variable costs per unit.
Beyond calculating your break-even point, break-even analysis is a powerful strategic tool for business planning and decision-making.
Pricing Strategy
Use break-even analysis to test different pricing scenarios. Our calculator shows how changing your selling price affects your break-even point. Higher prices mean fewer units needed to break even, but may reduce sales volume. Lower prices require more sales but may increase market share.
Cost Management
Identify which costs have the biggest impact on your break-even point. Reducing fixed costs (like negotiating lower rent) or variable costs (finding cheaper suppliers) directly lowers your break-even threshold, making profitability easier to achieve.
Growth Planning
Before expanding, calculate your new break-even point with increased fixed costs (new location, additional staff). Ensure your projected sales can comfortably exceed the new break-even point to justify expansion.
Break-even analysis is a critical tool for assessing business feasibility before launch. It helps answer the fundamental question: "Can this business realistically reach profitability?"
Feasibility Checklist
- Realistic Sales Targets: Can you realistically sell enough units to exceed your break-even point? Compare your break-even units to market size and competitor sales.
- Market Demand: Is there sufficient demand in your target market to support your break-even sales volume?
- Competitive Pricing: Can you price your product/service competitively while still achieving a reasonable contribution margin?
- Cost Structure: Are your fixed and variable costs reasonable compared to industry standards?
- Margin of Safety: Aim for a margin of safety of 20-30% or higher to account for market fluctuations.
✅ Feasible Business Indicators:
- • Break-even point is achievable within your market size
- • Contribution margin is healthy (typically 30%+ for most businesses)
- • You have a clear path to exceed break-even sales
- • Fixed costs are manageable relative to expected revenue
What is the formula for break-even analysis?
The break-even point formula is: Break-Even Point (Units) = Fixed Costs ÷ (Selling Price per Unit – Variable Cost per Unit). For break-even in dollars: Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio, where Contribution Margin Ratio = (Selling Price – Variable Cost) ÷ Selling Price.
How do you calculate the break-even point in dollars?
To calculate break-even point in dollars, use: Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio. The contribution margin ratio is calculated as (Selling Price – Variable Cost per Unit) ÷ Selling Price per Unit. This tells you the total revenue needed to cover all costs.
What are examples of fixed vs. variable costs?
Fixed costs remain constant regardless of production volume and include rent, salaries, insurance, and equipment leases. Variable costs change with production volume and include raw materials, direct labor, shipping costs, and sales commissions. Understanding this distinction is crucial for accurate break-even analysis.
Why is break-even analysis important for a new business?
Break-even analysis is critical for new businesses because it helps determine minimum sales needed to survive, set realistic pricing strategies, assess business feasibility before launch, secure funding by showing investors when profitability begins, and make informed decisions about costs and pricing.
How can I lower my break-even point?
You can lower your break-even point by reducing fixed costs (negotiate rent, cut unnecessary expenses), increasing selling price per unit, decreasing variable costs per unit (find cheaper suppliers, improve efficiency), or a combination of these strategies. A lower break-even point means you need fewer sales to become profitable.
What is a good margin of safety?
Margin of safety is the difference between actual or expected sales and break-even sales, expressed as a percentage. A good margin of safety is typically 20-30% or higher, indicating your business can withstand a sales decline of that amount before reaching the break-even point. Higher margins provide more financial security.
Does break-even analysis include taxes?
Standard break-even analysis typically does not include taxes, as it focuses on the point where revenue equals total costs before taxes. However, for more accurate planning, you can include estimated taxes as part of your fixed costs or calculate a post-tax break-even point by adding tax obligations to your fixed costs.