The break-even point is the number of units where revenue exactly covers all costs. It is one of the most useful pricing formulas in business — and it is just division.
The denominator is what each unit contributes toward fixed costs after its own variable cost.
The example
A product with fixed monthly costs, a selling price, and a per-unit variable cost.
| A | B | |
|---|---|---|
| 1 | Item | Value |
| 2 | Fixed costs | $6,000 |
| 3 | Price per unit | $40 |
| 4 | Variable cost | $25 |
| 5 | Break-even units | 400 |
The formula
Contribution margin per unit is price minus variable cost. Fixed costs divided by that margin is the break-even quantity:
How it works
The reasoning:
- Each unit sells for $40 but costs $25 in variable cost, so it contributes $15 toward fixed costs.
- Fixed costs are $6,000, so you need $6,000 ÷ $15 = 400 units to cover them.
- At 400 units, total contribution ($6,000) exactly equals fixed costs — profit is zero.
- ROUNDUP ensures a fractional answer (e.g. 400.3) rounds to the next whole unit, since selling part of a unit will not cover costs.
Sell one more than break-even and every additional $15 of contribution is pure profit.
Try it: interactive demo
Enter your costs and price; the break-even quantity updates instantly.
Variations
Break-even in sales dollars
Multiply break-even units by price, or divide fixed costs by the contribution margin ratio.
Units needed for a target profit
Add the profit goal to fixed costs before dividing.
Pitfalls & errors
If price is less than or equal to variable cost, the margin is zero or negative and break-even is impossible — the formula returns an error or a negative number. Raise price or cut variable cost.
Keep fixed and variable costs in the same period (per month here). Mixing annual fixed with monthly variable gives nonsense.
Practice workbook
Frequently asked questions
What is the contribution margin?
Why round up instead of to the nearest whole number?
How do I find break-even in dollars?
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