How break-even works
Every unit you sell brings in its price but also costs its variable cost — materials, packaging, shipping, payment fees, commissions. What is left over, the contribution margin, goes first toward paying the fixed costs you owe regardless of sales. Once enough units have paid off the fixed costs, each further unit's contribution is profit. Break-even is the point where total revenue exactly equals total cost.
The formulas
Contribution margin CM = price − variable cost Break-even units = fixed costs / CM Break-even sales ($) = units × price = fixed costs / (CM / price) Units for target profit = (fixed costs + target) / CM
Worked example
A small candle business has $12,000 of monthly fixed costs, sells candles for $45 and spends $25 per candle on wax, jars and shipping.
CM = 45 − 25 = $20. Break-even = 12,000 / 20 = 600 candles, or 600 × 45 = $27,000 of sales. To earn a $6,000 profit: (12,000 + 6,000) / 20 = 900 candles.
Limitations
- Assumes a single product (or an average mix) and a constant price and variable cost; real costs often step up with volume.
- Fixed costs are fixed only within a range — a second shift or a bigger warehouse changes them.
- Profit here is before income tax.
Sources: U.S. Small Business Administration, Calculate your startup costs (break-even analysis).
Frequently asked questions
What counts as a fixed cost?
Costs that do not change with how much you sell over the period you are looking at: rent, salaries, insurance, software subscriptions, loan payments, equipment leases. Enter them for the same period you want the break-even for — usually a month.
What is contribution margin?
The amount each unit contributes toward fixed costs and then profit: price minus variable cost per unit. With a $45 price and $25 variable cost, every sale contributes $20. The contribution margin ratio, 20 / 45 = 44.4%, is the share of each sales dollar that is left after variable costs.
What if the price is lower than the variable cost?
Then each sale loses money and there is no break-even point no matter how much you sell. The calculator flags this. You need to raise the price or cut the per-unit cost.
Why is the break-even unit count rounded up?
You cannot sell a fraction of a unit, and selling one unit fewer than the exact figure still leaves a small loss. The calculator shows the exact value and the whole number of units you actually need.
CalcNest results are estimates based on the inputs and assumptions above, not financial, tax or lending advice. A lender's official Loan Estimate or your account statement is the final word.