Break-even analysis
Find the unit volume and revenue that exactly cover fixed and variable costs, then see how much room there is between break-even and your plan. The margin of safety and operating leverage are derived from the same contribution margin.
| Volume | Revenue | Variable cost | Fixed cost | Profit |
|---|---|---|---|---|
| 4444 units | $200,000 | $80,000 | $240,000 | -$120,000 |
| 6667 units | $300,000 | $120,000 | $240,000 | -$60,000 |
| 8889 units | $400,000 | $160,000 | $240,000 | +$0.00 |
| 1.111e+4 units | $500,000 | $200,000 | $240,000 | +$60,000 |
| 1.333e+4 units | $600,000 | $240,000 | $240,000 | +$120,000 |
At break-even volume the profit row is exactly zero — revenue covers variable and fixed costs with nothing left over.
CM = P − V · what each unit contributes to fixed costs
Q* = F / (P − V) · undefined when price is below variable cost
F / CM ratio · equivalent to Q* · P
(Q − Q*) / Q · how far sales can fall before a loss
A clear path from inputs to results.
Break-even is the volume at which revenue exactly covers fixed and variable costs. Everything below it is a loss; everything above contributes to profit at the rate of the contribution margin. This engine reports the break-even point, the profit at your planned volume, and how far sales can fall before you are underwater.
How to use
- Enter total fixed costs for the period — rent, salaries, insurance, anything that does not move with volume.
- Enter the price per unit.
- Enter the variable cost per unit: materials, packaging, payment fees, delivery.
- Set your planned volume to see the profit and the margin of safety at that level.
- Check the contribution margin ratio — it is the share of each sale available to cover fixed costs.
- Use the price-sensitivity chart before cutting price to win volume.
The formula
Reference: Horngren, Datar & Rajan, "Cost Accounting", ch. 3 (cost-volume-profit analysis).
Worked example
$240,000 fixed cost, $45 price, $18 variable cost (default inputs)
- Fixed costs $240,000.
- Price $45 per unit.
- Variable cost $18 per unit.
- Planned volume 12,000 units.
- 1
Contribution margin: 45 − 18 = $27 per unit, or 60% of price.
- 2
Break-even volume: 240,000 / 27 = 8,889 units.
- 3
Break-even revenue: 8,889 × 45 = $400,000.
- 4
Profit at plan: 12,000 × 27 − 240,000 = $84,000.
- 5
Margin of safety: (12,000 − 8,889) / 12,000 = 25.9%.
Break-even 8,889 units or $400,000 of revenue · profit at plan $84,000 · margin of safety 25.9%.
Interpreting the result
A 60% contribution margin means every sale above break-even drops 60 cents of each dollar to the bottom line. The margin of safety says sales can fall 25.9% before the business makes a loss — that is the buffer, and it is usually more informative than the break-even number itself. If price falls 10%, the break-even volume jumps by roughly 20%, which is why discounting is so dangerous for high-fixed-cost businesses.
Assumptions & limitations
- Fixed costs stay fixed within the relevant range. Beyond a capacity threshold they step up, which invalidates the linear model.
- Variable cost per unit is constant. Volume discounts and overtime both break this.
- Price is constant across all units — no tiered pricing or promotional mix.
- The product mix is a single product, or a fixed mix with a blended contribution margin.
- No inventory effects: units produced equal units sold.
Frequently asked questions
What is contribution margin?
Price minus variable cost per unit. It is what each sale contributes toward fixed costs and then profit. A 60% ratio means 60 cents of every revenue dollar is available after variable costs.
What happens if I cut price to gain volume?
The contribution margin falls and the break-even volume rises — often faster than volume can grow. A 10% price cut on a 60% margin reduces the contribution to 55.6% of the new price, raising break-even volume by about 20%.
How do I handle multiple products?
Use a weighted-average contribution margin based on the sales mix, or compute break-even per product line. The single-product model assumes a fixed mix.
Why is the margin of safety more useful than break-even?
Because it is expressed relative to your actual plan. Break-even tells you the floor; margin of safety tells you how far above the floor you are operating. A business 5% above break-even is fragile regardless of how large the absolute numbers are.
Does break-even include the owner’s salary?
It should, if the owner works in the business. Treat it as a fixed cost; otherwise break-even understates the true requirement.
What if variable cost exceeds price?
Then the contribution margin is negative and no volume can break even — every additional sale increases the loss. The engine reports this as unreachable rather than returning a negative unit count.
Methodology last reviewed 2026-10-18. Results are informational and not financial or engineering advice — see our disclaimer.