What is the break-even point and how is it calculated?

What is the break-even point?

The break-even point is the level of sales at which the business makes neither a profit nor a loss: revenue covers all costs exactly¹. Below that number of sales it loses money; from there on, it starts to earn.

Break-even point (units) = fixed costs ÷ contribution margin per unit

It is the first number to know before opening a business or launching a product: it tells you how many sales are needed just to pay the bills. You can estimate it on our break-even point calculator.

The contribution margin is the engine

Each sale first pays its own variable cost, and what is left over contributes towards the fixed costs. That leftover is the contribution margin per unit:

Contribution margin = selling price − variable cost

For example, a service that sells for €50 and has €30 of variable cost has a contribution margin of €20. Each service sold takes €20 out of the "hole" of the fixed costs. When the sum of those margins equals the fixed costs, you have reached break-even.

How it is calculated

Imagine €2,000 of fixed costs a month and a contribution margin of €20 per unit:

Break-even point = 2,000 ÷ 20 = 100 units

The revenue at break-even is those units times the price: 100 × 50 = €5,000. From the hundredth sale on, each extra unit adds its €20 margin straight to profit. This is the same logic behind the profit margin: the contribution margin is the margin left before paying the business's fixed costs.

Fixed costs and variable costs

The calculation only works if you separate the two types of cost properly:

Only the fixed costs are divided by the contribution margin. Variable costs are already deducted in the margin (price − variable cost), so they do not enter again. Misclassifying an expense is the mistake that most distorts the result.

Margin of safety

If you know how many units you expect to sell, the calculator also shows the profit at that volume and the margin of safety: how far sales can fall before returning to break-even. Selling 150 units when break-even is 100 gives a margin of safety of 50 units, or 33%: sales could drop by a third before the business turned to a loss.

Worked example

A workshop has €2,000 of fixed costs a month (rent, electricity, software). Each job sells for €50 and has €30 of variable cost (parts and consumables):

• contribution margin = 50 − 30 = €20 per job;
• break-even point = 2,000 ÷ 20 = 100 jobs a month;
• revenue at break-even = 100 × 50 = €5,000.

If the workshop does 150 jobs, the profit is 20 × 150 − 2,000 = €1,000, with a margin of safety of 50 jobs (33%).

Break-even, VAT and taxes

Always do the calculation with amounts excluding VAT, for both the price and the costs: VAT is charged to the customer and handed to the State, so it is neither revenue nor a cost of the business. To add or remove VAT from an amount, use the VAT calculator. And remember that the break-even point is worked out before taxes on profit: passing it means starting to make a profit, on which income or corporate tax will still apply.

What this calculation does not include

The calculator assumes a single product (or an average service) with constant fixed and variable costs. It does not handle a mix of products with different margins (there the break-even point depends on the weight of each in sales), nor costs that change in steps (hiring another person as you grow), nor taxes on profit. Use the estimate to set prices and sales targets with confidence, and confirm the business's figures with your accountant.