The number every business should know first
Before “how much profit will I make?” comes a more urgent question: “how much do I need to sell just to survive?” That is the break-even point — the sales level where total revenue exactly covers total costs. Below it you are losing money; above it, every additional sale contributes to profit.
New businesses use it to test whether an idea is viable. Existing businesses use it to set sales targets, price new products and decide whether a big fixed cost (a shop lease, a new hire, a machine) is affordable. It takes three inputs and thirty seconds, and it has saved more businesses than any business plan ever written.
How to use it
- Enter your fixed costs for the period (monthly or annual — just be consistent): rent, salaries, insurance, software, loan payments.
- Enter your selling price per unit (or average revenue per customer/job).
- Enter your variable cost per unit: what each additional sale costs you in materials, delivery, fees or direct labour.
- Read your break-even point in units and in revenue, plus your contribution margin per unit.
- Adjust the inputs to model scenarios: what if rent rises? What if you raise prices 10%?
What it calculates and how the formula works
| Measure | Formula |
|---|---|
| Contribution margin per unit | Selling price − variable cost per unit |
| Break-even (units) | Fixed costs ÷ contribution margin per unit |
| Break-even (revenue) | Break-even units × selling price |
| Contribution margin ratio | Contribution margin ÷ selling price |
Assumptions:
- Fixed costs are truly fixed for the period you analyse. In reality some “fixed” costs step up at certain volumes (a second oven, a second employee) — the tool analyses one step at a time.
- One average product. Businesses with many products should use a weighted-average price and variable cost, or run the tool per product line.
- The analysis is for a single period (a month, a year). It does not account for the time value of money or for growth in fixed costs.
Worked example: the coffee shop
Nadia is considering opening a small coffee shop. Her monthly numbers:
- Fixed costs: £6,500 (rent £3,000, wages £2,500, insurance/utilities/software £1,000)
- Average selling price per transaction: £4.20
- Variable cost per transaction (coffee, milk, cup, card fee): £1.10
The calculator shows:
- Contribution margin: £4.20 − £1.10 = £3.10 per sale
- Break-even units: £6,500 ÷ £3.10 = 2,097 transactions per month
- Break-even revenue: 2,097 × £4.20 = £8,807 per month
That is about 70 transactions a day over 30 days. Nadia knows the footfall on her street; if 70 paying customers a day looks unrealistic, the idea needs reworking before she signs a lease. If she raises the average transaction to £4.80 (pastries, upsells), break-even falls to 1,757 — the tool lets her test that in seconds.
Important considerations and limitations
- It is a snapshot, not a forecast. Break-even tells you the survival line for a given cost structure. It does not tell you whether you will actually sell that much — that is a market question.
- Fixed costs move in steps. Hiring one more barista raises fixed costs in a jump, not smoothly. Re-run the calculation after any structural change.
- Price rises cut break-even fast. Because fixed costs stay put, a 10% price increase often cuts the break-even point by much more than 10%. The scenario modelling is the most valuable feature — use it.
- Do not forget your own wage. Founders routinely leave their salary out of fixed costs and then “break even” while earning nothing. Put a realistic owner’s wage in fixed costs.
- Browser-local: your business figures never leave your browser.
Frequently asked questions
How do I calculate the break-even point?
Divide your fixed costs by your contribution margin per unit (selling price minus variable cost per unit). £6,500 fixed costs ÷ £3.10 contribution = 2,097 units.
What is the break-even point in sales revenue?
Multiply break-even units by the selling price. 2,097 units × £4.20 = £8,807 in monthly revenue.
What are fixed vs variable costs?
Fixed costs do not change with sales volume in the short term (rent, salaries, insurance). Variable costs rise with each sale (materials, delivery, transaction fees). Getting this split right is the whole game.
Can service businesses use a break-even calculator?
Yes. Use “average revenue per project/client” as the unit price and the direct costs of delivering each project as the variable cost. A freelancer’s “units” might be billable days.
What if I sell multiple products at different prices?
Use a weighted average: multiply each product’s contribution margin by its share of sales, add them up, and divide fixed costs by that figure. Or run the tool separately for each product line.
My break-even looks impossibly high. What now?
You have three levers: raise prices, cut fixed costs, or cut variable costs per unit. The calculator lets you test each. If none of the levers make the number reachable, that is valuable information — better learned here than after signing a lease.
Is my data uploaded anywhere?
No. All calculations run locally in your browser.
Related tools
External references
- SBA — Plan your business (includes cost structure guidance)
- GOV.UK — Keeping business records
- IRS — Recordkeeping for small businesses
This tool provides estimates for guidance only and is not professional financial, tax, or legal advice.