How to Calculate Break-Even Point (with worked examples)

The formula

Break-even units = fixed costs ÷ (price per unit − variable cost per unit)

The bracket is your contribution margin: the part of each sale that is left over to pay for the things that don't change with volume.

Step 1: separate fixed from variable

Fixed costs are paid whether you sell nothing or a thousand: rent, software subscriptions, insurance, your own draw, loan repayments, accountant fees.

Variable costs arrive with each sale: materials, packaging, shipping, marketplace fees, payment processing, piece-rate labor.

The mistake most people make is putting their own time in the wrong bucket. If you pay yourself a set amount monthly, it's fixed. If you pay per item made, it's variable.

Step 2: work out contribution margin

Say you sell a candle for $40. Materials cost $9, packaging $2, shipping $3, and marketplace fees $2. Variable cost is $16, so contribution margin is $24 per candle — 60% of the price.

Step 3: divide

With $3,000 of monthly fixed costs: $3,000 ÷ $24 = 125 candles a month. That's your break-even point. In revenue terms, 125 × $40 = $5,000.

Break-even in revenue (when you sell many different things)

If you sell dozens of products, unit maths gets messy. Use the ratio instead: break-even revenue = fixed costs ÷ contribution margin ratio. With a blended 55% contribution margin and $3,000 of fixed costs, you need $5,455 in sales a month.

How to read the answer

• Break-even far above current sales? Your price is usually the problem, not your costs.
• Break-even close to current sales? You're one price rise or one cost cut from profitable.
• Break-even below current sales? Every extra sale now contributes straight to profit.

The lever that moves it most

Raising price by 10% on the candle above takes contribution from $24 to $28 and drops break-even from 125 units to 108 — a 14% easier target, from a change most customers won't notice. Cutting $200 of fixed costs only moves it to 117.