What is the break-even point?
The break-even point is the level of sales where total revenue equals total costs — you neither make a profit nor a loss. Below break-even you're losing money; above it you're profitable. Formula: Break-Even Units = Fixed Costs ÷ (Price − Variable Cost per Unit). Break-Even Revenue = Fixed Costs ÷ Contribution Margin Ratio.
What is contribution margin?
Contribution Margin = Selling Price − Variable Cost per Unit. It represents how much each unit "contributes" toward covering fixed costs and then generating profit. Contribution Margin Ratio = Contribution Margin ÷ Price. A 60% CMR means 60% of every sale goes toward covering fixed costs — once fixed costs are covered, that full 60% becomes profit.
What are fixed vs. variable costs?
Fixed costs don't change with sales volume: rent, salaries, insurance, equipment leases. Variable costs change proportionally with production: materials, packaging, shipping, sales commissions. Semi-variable costs (utilities, overtime) have both components. Correctly categorising costs is critical — misclassifying a fixed cost as variable will skew your break-even result.
What is the margin of safety?
Margin of Safety = (Expected Sales − Break-Even Sales) ÷ Expected Sales × 100%. It shows how far sales can fall before you hit a loss. A 30% margin of safety means sales would need to drop 30% before you start losing money. Higher is safer. High fixed-cost businesses — like airlines, hotels, restaurants, and manufacturing plants — typically have thin safety margins because their break-even point is high relative to maximum capacity.
How can I lower my break-even point?
Three strategies: (1) Increase price — most impactful but affects demand. (2) Reduce variable costs — negotiate supplier pricing, improve efficiency. (3) Reduce fixed costs — renegotiate rent, automate processes, use variable staffing. Increasing price has the most leverage: a 10% price increase reduces break-even units by ~10–15% depending on margins.
Does my selling price include tax (VAT/GST)?
In many countries (UK, EU, India, Australia, Canada), consumer prices include tax. If you sell at a price that includes VAT or GST, only the ex-tax portion counts as revenue for break-even purposes. For example, a UK product sold at £120 including 20% VAT has an effective selling price of £100. Use the "Selling price includes tax" toggle to let the calculator handle this automatically.
How does multi-product break-even work?
When you sell multiple products, the break-even point depends on your sales mix — the proportion of each product sold. The calculator computes a weighted average contribution margin across all products, then divides your total fixed costs by that blended margin. The result is the total units you need to sell (in the given mix) to break even. Changing the mix changes the blended margin and therefore the break-even point.