Break Even Calculator

How to Use the Break Even Calculator

What is a break even analysis?

A break even analysis finds the sales level where total revenue equals total cost, so you make neither a profit nor a loss. It answers three questions: how many units you must sell to cover your costs, how much revenue that is, and how far sales can fall before you start losing money.

The break even formula, with cost and revenue

Break-even is the unit count where the first two lines, total revenue and total cost, are equal. Fixed costs stay the same at any volume, so each unit you sell contributes its margin toward them until they are covered. The graph under the results plots both lines, and the point where they cross is the break-even point.

Worked example: a product business

Fixed costs are $15,000 a month, the price is $40 and the variable cost is $18. The contribution margin is $40 − $18 = $22 a unit, and $15,000 ÷ $22 = 681.8, rounded up to 682 units. In revenue that is 682 × $40 = $27,280 a month before any profit appears.

Each lever helps. Raising the price cuts break-even units the most in this example (577), then cutting fixed costs (614), then cutting variable cost (631).

How do I calculate break even revenue in dollars?

Divide fixed costs by the contribution margin ratio, which is the margin divided by the price. In the example the ratio is $22 ÷ $40 = 55%, so $15,000 ÷ 0.55 = $27,273. The calculator shows $27,280 because it rounds units up to 682 first. Use the dollar version when you sell many items at different prices.

How do I find the sales for a target profit?

Add the profit you want to fixed costs before dividing. For a $5,000 monthly profit in the same example, ($15,000 + $5,000) ÷ $22 = 909.1, rounded up to 910 units, or $36,400 in revenue. Enter the profit in the Target Profit field and the calculator does this for you.

Break even for a service business

For a service, count hours or projects as the unit. A consultant with $8,000 of monthly fixed costs who bills $85 an hour with $15 an hour of direct cost has a $70 margin, so $8,000 ÷ $70 = 114.3 billable hours a month, which the calculator rounds up to 115. A web designer with $2,200 of fixed costs, a $1,500 project fee and $150 of direct cost per project has a $1,350 margin and breaks even at 1.63 projects, so 2 a month.

Break even for a restaurant

Treat each guest as a unit. With $38,000 a month of fixed costs (rent, salaried staff, insurance, loan payments), an average spend of $32 a guest and $11 a guest in food, drink and card fees, the margin is $21. Break-even is $38,000 ÷ $21 = 1,810 guests a month, or about 70 a day over 26 open days. Those figures are an illustration, so use your own.

Fixed versus variable costs

Fixed costs stay constant at any volume within your normal range: rent, salaried staff, insurance, loan payments and subscription software. Variable costs scale with each unit: materials, production labor, packaging, shipping, sales commissions and payment processing fees. Some costs mix both, such as a utility bill with a base fee plus usage, so split them. Treating a variable cost as fixed distorts the cost per unit and the break-even point.

How do I calculate break even in Excel or Google Sheets?

Put fixed costs in B1, price in B2, variable cost in B3 and target profit in B4. Use these formulas in B5 to B9, one per row:

B5 Contribution margin   =B2-B3
B6 Break-even units      =ROUNDUP(B1/(B2-B3),0)
B7 Break-even revenue    =ROUNDUP(B1/(B2-B3),0)*B2
B8 Units for target      =ROUNDUP((B1+B4)/(B2-B3),0)
B9 Margin of safety      =(projected-B6)/projected

In B9, replace projected with your sales forecast cell. To draw your own chart, list units down a column from 0 in steps, then add a revenue column (=B$2*A2) and a total cost column (=B$1+B$3*A2) and plot both as lines.

How do I read the break even graph?

The green line is revenue and the red line is total cost. Below the crossing you lose money, because cost is higher. Above it you make money. The dashed line is fixed costs, which total cost starts from at zero units. A steeper revenue line, a flatter cost line or a lower dashed line all move the crossing to the left, so you break even sooner.

How do I lower my break-even point?

Price, variable cost and fixed costs are the three levers, and the table above shows what each does to the $15,000 example. Raising price or cutting variable cost widens the margin on every unit, and lower fixed costs shrink what that margin must cover. Change one input at a time in the calculator to see which lever is cheapest for you.

What does break even analysis not tell you?

It finds the point of zero profit, not adequate profit. A business that sells exactly its break-even volume earns nothing for its owner, which is why the target profit field exists. It also assumes steady prices and costs, so run it again with a cautious price or a higher variable cost before you rely on it.

What does the margin of safety mean?

Margin of safety is how far projected sales can fall before you reach break-even, as a share of projected sales. A candle maker with 300 projected sales against a 150-candle break-even has a margin of safety of (300 − 150) ÷ 300 = 50%. A thin margin means a small drop in sales turns profit into a loss.

Does this change by country?

The arithmetic does not. The dollar sign is a label, so enter amounts in your own currency. Enter the price without sales tax, VAT or GST, since you collect those for the tax authority, and enter costs the way your accounts record them.

What to do with the result

Compare break-even volume with what you can realistically sell. If it looks out of reach, test the three levers above. Then check the margin you earn per sale with the Profit Margin Calculator, and judge whether an investment in automation shortens the road with the AI Automation ROI Calculator or the ROI Calculator.

Frequently Asked Questions