How break-even works
Each sale leaves something over after its own costs. That leftover is the contribution. Break-even is the point where the contributions from all your sales add up to your fixed costs.
The answer is rounded up to a whole unit, because selling one unit fewer would leave you short.
Worked example
Your fixed costs are $5,000.00 a month. You sell at $50.00 and each unit costs $30.00 to make and deliver. The contribution is $20.00 per unit, so you break even at 250 units, which is $12,500.00 of revenue. To also make $2,000.00 of profit you need 350 units.
Fixed or variable?
Ask whether the cost would still be there in a month with no sales. If yes, it is fixed. If it only appears when you sell something, it is variable. Use the same period for everything: monthly fixed costs give monthly break-even units.
What this model assumes
- One product, or an average price and average variable cost across your products.
- The price and the variable cost stay the same at every volume. Bulk discounts and volume pricing are not modelled.
- Everything you make is sold in the same period.
Questions
I sell services, not products. What is a unit?
Use whatever you bill for: an hour, a day, a project or a monthly retainer. The freelance hourly rate calculator approaches the same question from the income you want.
Why does it say there is no break-even point?
If the price is not higher than the variable cost, every sale loses money and more sales make it worse. Raise the price or cut the cost per unit. The margin and markup calculator helps with that.