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Break-Even Analysis: How to Calculate Your Break-Even Point

By Sofia Marchetti·April 24, 2026·8 min read

Key takeaways

Break-even = fixed costs divided by contribution margin (per unit or as a ratio).
Contribution margin is the selling price minus variable cost per unit.
A lower break-even point makes a business more resilient to slow sales.
Lower it by cutting fixed or variable costs, raising prices, or improving sales mix.

Break-even is where the revenue line overtakes total cost — every unit after it adds profit.

A break-even analysis tells you how many units you must sell, or how much revenue you must earn, to cover all your costs, the point where profit is exactly zero. You calculate it by dividing your fixed costs by the contribution margin, the money left from each sale after variable costs. Below the break-even point a business loses money; above it, every additional sale turns a profit. It is one of the first numbers a lender or investor checks, because it shows how much has to go right for the business to survive.

Why break-even is the number lenders check first

Break-even reframes a plan from hope to arithmetic. It answers a blunt question: how much must you sell before the business stops bleeding cash? A low break-even point means the business stays profitable even when sales dip, which is exactly the resilience a loan officer wants to see. That is why the figure belongs near the front of your financial projections and in any SBA loan application.

Fixed costs, variable costs, and contribution margin

Three inputs drive the whole calculation. Fixed costs stay the same regardless of sales: rent, salaries, insurance, software, equipment leases. Variable costs rise and fall with each unit sold: materials, packaging, payment fees, hourly labor tied to production. The contribution margin is the selling price minus the variable cost per unit, the slice of each sale that goes toward covering fixed costs. Sell a $100 product that costs $40 to make and your contribution margin is $60.

How to calculate the break-even point

There are two standard formulas. For a unit count, divide fixed costs by the contribution margin per unit: break-even units = fixed costs / (price per unit minus variable cost per unit). For a revenue figure, divide fixed costs by the contribution margin ratio: break-even sales = fixed costs / contribution margin ratio. If your fixed costs are $60,000, your price is $100, and your variable cost is $40, you break even at 1,000 units, or $100,000 in sales. Change any input and the point moves. To run your own numbers instantly, use our free break-even calculator.

A worked example

Say you run a small product business with $90,000 in annual fixed costs. Each item sells for $50 and costs $20 in materials and fees, a $30 contribution margin. Dividing $90,000 by $30 gives a break-even of 3,000 units a year, about 250 a month. Now you can test it against demand: if your market and capacity support 250 units a month, the plan is plausible; if not, you change the price, the cost, or the model before you ever open.

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How to lower your break-even point

A lower break-even point makes a business safer, and there are four levers. Cut fixed costs so fewer sales cover the base. Reduce variable costs through better sourcing or process efficiency, which widens the contribution margin. Raise prices, which lifts contribution per unit directly. Improve the sales mix by selling more of your higher-margin products. Each lever has limits, cutting fixed costs can cap capacity and competition can block price increases, so the right move depends on your market. Tracking your contribution margin and unit economics shows which lever pays off most.

Common mistakes in a break-even analysis

Misclassifying a variable cost as fixed, or the reverse, which skews the whole result.
Forgetting to include owner pay, taxes, or loan repayments in fixed costs.
Using an average price when you sell several products at different margins.
Treating break-even as the goal rather than the floor; you plan to clear it, not hit it.
Ignoring time: break-even in units means little without a realistic sales pace.

Where break-even fits in your model

Break-even is one output of a complete model, not a standalone spreadsheet. It draws on the same cost structure that feeds the financial statements, so it stays accurate as assumptions change. If you would rather have it built correctly, our financial modeling service delivers a working model with break-even, scenarios, and the documented assumptions a lender or investor expects.

Frequently asked questions

How do you calculate the break-even point?+

Divide fixed costs by the contribution margin. For units, break-even = fixed costs / (price per unit minus variable cost per unit). For revenue, break-even = fixed costs / contribution margin ratio. With $60,000 fixed costs, a $100 price, and $40 variable cost, you break even at 1,000 units or $100,000 in sales.

What is a good break-even point?+

The lower the better. A low break-even point means you cover costs at modest sales volume, so the business stays profitable even when sales decline. There is no universal number; judge it against your realistic sales capacity and market demand.

How can I lower my break-even point?+

Use one of four levers: cut fixed costs, reduce variable costs to widen the contribution margin, raise prices, or shift the sales mix toward higher-margin products. Each has practical limits, so the right choice depends on your costs and competition.

Why is break-even analysis important?+

It converts a business plan into arithmetic, showing exactly how much must sell for the business to survive. Lenders and investors use it to gauge risk, and owners use it to test pricing and cost decisions before committing.

About the author

Sofia Marchetti

Head of Financial Modeling

Sofia came up through corporate FP&A and startup finance, building the driver-based models founders live or die by. At Planypals she leads the financial modeling and writes the guides on projections, unit economics, and cap tables. She is unmovable on one point — a number you can't trace back to a defensible assumption has no business being in the model.

Reviewed for accuracy by Claire Whitfield, Managing Editor.

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