Break-even point formula and how to price a product for a target margin
Break-even is the number of units you must sell before you start making a profit. Knowing it tells you whether a product is worth launching.
Break-even formula
Break-even units = fixed costs ÷ (price − variable cost per unit). The bottom part is the contribution margin, the amount each sale adds towards covering fixed costs.
Example: fixed costs $3,000 a month, price $25, variable cost $10. Contribution = $15 per unit, so break-even = 3,000 ÷ 15 = 200 units, or $5,000 in revenue. Every unit after the 200th adds $15 of profit.
Margin vs markup
These are often confused. Margin is profit as a share of the selling price. Markup is profit as a share of cost. A $10 item sold at a 30% markup costs $13, but the margin is only 23.1%.
Skip the maths, try your own numbersProduct Pricing & Break-even CalculatorFree, instant, no sign-up →Price for a target margin
Price = cost ÷ (1 − target margin). For a $10 cost and a 30% margin, price = 10 ÷ 0.70 = $14.29. For a 50% margin, price = $20.
Include all variable costs
Add fees, shipping, packaging and expected returns to the unit cost before you apply the formula. Fixed costs are things like software, rent and salaries that do not change with each sale.
Enter your own costs in the calculator below to see the break-even point and the price that reaches your margin.
Break-even in revenue, not just units
Break-even revenue equals fixed costs divided by the contribution margin ratio. In the example, the ratio is $15 ÷ $25 = 60%, so break-even revenue is $3,000 ÷ 0.60 = $5,000, which matches 200 units at $25.
How much do you need to sell for a profit target?
Units for target profit = (fixed costs + target profit) ÷ contribution per unit. To make $1,500 profit a month: (3,000 + 1,500) ÷ 15 = 300 units. This is a better planning number than the break-even alone.
How price changes the break-even point
| Price | Contribution per unit | Break-even units |
|---|---|---|
| $22 | $12 | 250 |
| $25 | $15 | 200 |
| $28 | $18 | 167 |
A small price change moves the break-even a lot. Raising the price by $3 cuts the units needed by about a sixth, but you must judge whether demand will hold.
Margin vs markup conversion
| Markup on cost | Margin on price |
|---|---|
| 25% | 20% |
| 50% | 33.3% |
| 100% | 50% |
Margin = markup ÷ (1 + markup). Always say which one you mean when you talk to suppliers and investors.
Margin of safety
Margin of safety is how far your sales are above break-even, as a percentage. If you expect 300 units and break-even is 200, your margin of safety is (300 − 200) ÷ 300 = 33%. Sales could fall by a third before you lose money.
Fixed vs variable vs semi-variable costs
- Fixed: rent, software subscriptions, salaries, insurance.
- Variable: product cost, packaging, shipping, payment fees, sales commissions.
- Semi-variable: costs with a base plus a usage part, such as phone plans or hourly staff with a minimum.
Break-even for services and freelancers
Treat your available hours as units. If monthly costs are $2,000 and you charge $50 an hour with $5 of variable costs per hour, you need 2,000 ÷ 45 = 44.4 billable hours to break even. Compare this with the hours you can realistically sell.
Limits of break-even analysis
It assumes a steady price and constant costs, which is a simplification. Bulk discounts, step-up costs and discounts change the picture. Use the result as a planning guide and update it as real numbers arrive.
Troubleshooting: common problems and fixes
- Break-even is far higher than expected. Check variable costs and fixed costs. Small errors in contribution margin make a big difference.
- Costs change with volume. Break-even assumes steady costs. Recalculate when you cross a cost step, such as a new warehouse or staff member.
- I sell multiple products. Use a weighted average contribution margin or calculate each product separately.
- Price needs to stay competitive. Test how a lower price affects units needed, and whether demand can reach that level.
- I include ad spend. Treat ad cost per sale as a variable cost, or a fixed monthly budget as a fixed cost, but be consistent.
How accurate is this?
The formulas are standard cost-volume-profit analysis. They assume a constant price and constant unit costs, so treat the result as a planning guide. Replace estimates with real numbers as you collect them. The calculator does not store your data.
More free Zyphub tools you may need
- Product Pricing & Break-even Calculator: Selling price, margin and break-even point.
- E-commerce Net Profit Calculator: Real profit per order after all costs.
- Marketplace Fee Calculator: Amazon, eBay and Etsy fees and payout.
Frequently asked questions
What is the break-even point formula?
Fixed costs divided by (price per unit minus variable cost per unit). The denominator is the contribution margin per unit.
How do I find the price for a target margin?
Price = cost ÷ (1 − target margin). For a $10 cost and 40% margin, price is $16.67.
What is the difference between margin and markup?
Margin is profit as a share of the selling price. Markup is profit as a share of cost, so the same profit gives a higher markup than margin.
What is contribution margin?
The price minus the variable cost of a unit, which is the amount each sale contributes towards fixed costs and profit.
How many units do I need to reach a profit goal?
Add the profit goal to the fixed costs and divide by the contribution margin per unit.
What does break-even mean in simple words?
It is the point where total revenue equals total costs, so you neither make a profit nor a loss.
How do I reduce my break-even point?
Raise the price, cut variable costs, reduce fixed costs or improve the sales mix towards higher-margin products.