Break-even is the exact point where total revenue equals total cost — before it, every sale adds to your loss; after it, every sale adds to profit. Knowing that number turns "are we doing okay?" into a specific, checkable target.
The three inputs
- Fixed costs— rent, salaries, insurance: costs that don't change with how much you sell.
- Variable cost per unit — raw material, packaging, per-unit delivery: costs that scale directly with volume.
- Selling price per unit — what you charge the customer.
Break-even in units
Break-even units = Fixed Costs ÷ (Selling Price − Variable Cost per unit)
The denominator — selling price minus variable cost — is your contribution margin: how much of each sale is left over after variable costs, to go toward covering fixed costs and then profit.
Example: fixed costs ₹5,00,000/year, selling price ₹500/unit, variable cost ₹300/unit. Contribution margin = ₹200. Break-even = 5,00,000 ÷ 200 = 2,500 units. Sell fewer than that in the year and you're operating at a loss; sell more and each additional unit contributes ₹200 straight to profit.
Break-even in revenue
Useful when a business sells multiple products at different prices and per-unit break-even doesn't apply cleanly:
Break-even revenue = Fixed Costs ÷ Contribution Margin Ratio
where Contribution Margin Ratio = Contribution Margin ÷ Selling Price. In the example above, that ratio is 200/500 = 40%, so break-even revenue = 5,00,000 ÷ 0.40 = ₹12,50,000 — which checks out: 2,500 units × ₹500.
Margin of safety
Once you know break-even, margin of safety tells you how much cushion you have above it: (Actual Sales − Break-even Sales) ÷ Actual Sales. If actual sales are 3,500 units against a break-even of 2,500, margin of safety is (3,500 − 2,500) ÷ 3,500 ≈ 29%— sales could drop by 29% before you'd be back at break-even.
What moves the break-even point
Raising the selling price or cutting variable cost per unit both widen the contribution margin, lowering the units needed to break even. Cutting fixed costs lowers break-even directly. Which lever is realistic depends on the business — a price increase risks volume, a fixed-cost cut risks capacity — but the formula tells you exactly how much each option is worth before you commit to it.
Run your own numbers
Use the Break-even Calculator to find the units and revenue you need to cover your fixed and variable costs.