What counts as a fixed cost vs. a variable cost?

Fixed costs do not change with output: rent, salaries, insurance, software subscriptions. Variable costs scale directly with each unit produced or sold: raw materials, packaging, per-transaction fees, shipping. Some costs (utilities, overtime) are semi-variable and require judgment.

How does pricing affect the break-even point?

Price increases have a large impact: raising price by $2 in the example above grows the contribution margin from $12 to $14, cutting the break-even from 1,000 units to about 857 — an 14% reduction for a 10% price increase. This is why pricing is often more powerful than cost-cutting.

Business

Break-Even Calculator

The break-even point is the sales volume at which revenue exactly covers total costs — neither profit nor loss. Knowing it helps you price products, set sales targets, and understand how much cushion you have before a business becomes unprofitable.

Break-Even

How it works

Formula & methodology

Break-Even Units = Fixed Costs / (Price per Unit − Variable Cost per Unit). The denominator is called the Contribution Margin per unit — the amount each sale contributes toward covering fixed costs. Once fixed costs are covered, each additional unit sold at that margin becomes profit.

Source: Investopedia: Break-Even Analysis

Example

Worked example

Example: $12,000 monthly fixed costs (rent, salaries, insurance), $8 variable cost per unit (materials, packaging), $20 selling price. Contribution margin = $12. Break-even = $12,000 / $12 = 1,000 units/month. Revenue at break-even: $20,000.

FAQ

Frequently asked questions

What counts as a fixed cost vs. a variable cost?: Fixed costs do not change with output: rent, salaries, insurance, software subscriptions. Variable costs scale directly with each unit produced or sold: raw materials, packaging, per-transaction fees, shipping. Some costs (utilities, overtime) are semi-variable and require judgment.
How does pricing affect the break-even point?: Price increases have a large impact: raising price by $2 in the example above grows the contribution margin from $12 to $14, cutting the break-even from 1,000 units to about 857 — an 14% reduction for a 10% price increase. This is why pricing is often more powerful than cost-cutting.

Tips

Practical tips

Re-run this calculation whenever your costs or pricing change — even a small increase in a supplier's price can shift your break-even point more than expected.
Use the contribution margin (price minus variable cost) as a quick gut-check on any new product idea — a thin margin means you'll need very high volume to be profitable.

Results are estimates for general informational purposes only and do not constitute financial, tax, or legal advice. Always confirm important figures with a qualified professional or your lender before making a financial decision.