The break-even point is the number of sales where you stop losing money and start making it. Here’s the formula, the idea of contribution margin, and a worked example.
Your break-even point is where total revenue exactly equals total costs — no profit, no loss. In units, it’s:
Break-even units = Fixed costs ÷ (Price − Variable cost per unit)
The denominator — price minus variable cost — is your contribution margin: the slice of each sale that’s left over to chip away at your fixed costs. Once those fixed costs are fully covered, every further sale drops its whole contribution margin straight into profit.
If you’d rather think in revenue than units, use the contribution margin ratio — contribution margin divided by price:
Break-even revenue = Fixed costs ÷ Contribution margin ratio
In the candle example the ratio is $12 ÷ $20 = 0.60 (60%), so break-even revenue is $4,000 ÷ 0.60 = $6,680 — the same answer, reached from the revenue side.
Your break-even point depends heavily on your price and margin, so it’s worth getting those right first. Use the profit margin calculator to set a price, then read how to price a product for the full method.
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Break-even point (in units) = fixed costs ÷ (price per unit − variable cost per unit). The bottom part of that fraction is your contribution margin per unit. For example, $4,000 of fixed costs ÷ $8 contribution per unit = 500 units to break even.
Contribution margin is the money left from each sale after variable costs, which then goes toward covering fixed costs. It's the sale price minus the variable cost per unit. Once your total contribution covers all fixed costs, every additional sale is profit.
Fixed costs stay the same no matter how much you sell — rent, salaries, software, insurance. Variable costs rise and fall with each unit sold — materials, packaging, shipping, payment fees. You need both to calculate a break-even point.
Break-even revenue = fixed costs ÷ contribution margin ratio, where the ratio is contribution margin ÷ sale price. If fixed costs are $4,000 and your contribution margin ratio is 40%, you break even at $4,000 ÷ 0.40 = $10,000 in sales.
It tells you the minimum you must sell to avoid a loss, which is essential for setting sales targets, deciding whether a price is viable, and knowing how much runway you need. It also shows how a price change or cost cut moves the finish line.