How to Calculate Break-Even Point

Break-even analysis estimates the sales level where revenue covers the costs included in your calculation.

The basic formula

Break-even units = fixed costs ÷ (selling price per unit − variable cost per unit). The amount in parentheses is the contribution margin per unit.

Example

Suppose fixed costs are $2,000, the selling price is $100, and variable cost is $20. Contribution margin is $80, so break-even volume is $2,000 ÷ $80 = 25 units. At 25 sales, revenue is $2,500 and variable costs are $500, leaving $2,000 to cover fixed costs.

What counts as a fixed cost?

Depending on your business, fixed costs can include recurring software, insurance, rent, subscriptions, or other costs that do not change directly with each sale during the period you are analyzing.

What counts as a variable cost?

Variable costs are costs that rise with the quantity of work or sales, such as payment fees, materials, packaging, or subcontractor costs tied to a specific project.

Freelancer example

You can adapt the calculation to billable work by treating an hour or project as the unit. Be consistent about which costs and revenue period you include, and remember that taxes, owner compensation, and irregular costs may need separate treatment.

Planning note: Break-even analysis is a simplified planning model. Actual results depend on your accounting method, pricing, taxes, payment timing, and cost structure.

Related guides: Business Profit · Cash Flow Planning