Break-Even Analysis: Know Your Survival Number Before You Launch

How to calculate break-even units and revenue, read contribution margin, and use the result to set prices.

Every business has a survival number: the sales volume where revenue exactly covers costs. Below it you lose money; above it you profit. Knowing it before launch changes how you price, hire and spend.

Fixed vs variable costs

Fixed costs stay the same regardless of sales — rent, salaries, software subscriptions, insurance. Variable costs rise with each unit sold — materials, payment fees, shipping, per-unit commissions.

Contribution margin

Each sale contributes price minus variable cost toward fixed costs. That contribution is the engine of break-even.

Worked example

A small online store has 12,000 of monthly fixed costs. It sells a product at 40 with 16 of variable cost. Each unit contributes 24, so it needs 500 units (20,000 of revenue) a month to break even. The contribution margin ratio is 60%, which also gives break-even revenue directly: 12,000 ÷ 0.60 = 20,000.

Three levers, ranked

1. Price. Raising the price from 40 to 44 lifts contribution to 28 and cuts break-even to about 429 units — a 14% reduction from a 10% price change.
2. Variable cost. Negotiating supplier costs from 16 to 14 cuts break-even to about 462 units.
3. Fixed cost. Cutting 1,200 of overhead (10%) brings break-even to 450 units.

Price is usually the most powerful lever, which is why discounting can be so destructive: a 10% discount here pushes break-even to about 600 units.

Adding a profit target

To earn a target profit, add it to fixed costs. Wanting 6,000 a month of profit in the example requires (12,000 + 6,000) ÷ 24 = 750 units.

Limits of the model

Break-even assumes a constant price and variable cost. In reality, volume discounts, seasonal demand and capacity limits bend the line. Treat it as a planning baseline and re-run it whenever costs change.

Try it with your numbers in the break-even calculator.