Pricing & Profit formula

Break-Even Formula

Find the sales volume needed for contribution to cover fixed costs.

The equation

How the formula works

Formula

Break-even units = Fixed costs ÷ (Selling price per unit − Variable cost per unit)

What each term means

Fixed costs: Costs that do not change with unit volume within the period being analyzed.
Selling price per unit: Average revenue received for one unit.
Variable cost per unit: Cost that changes directly with each additional unit.
Contribution per unit: Selling price per unit minus variable cost per unit.

How to calculate it

1
Subtract variable cost per unit from selling price to find contribution per unit.
2
Divide fixed costs by contribution per unit.
3
Round up to the next whole sellable unit when planning a unit target.

Worked example

Put the formula into practice

Monthly fixed costs are $10,000. A product sells for $50 and has $30 of variable cost per unit.

$10,000 ÷ ($50 − $30) = 500 units

The business breaks even at 500 units, equal to $25,000 of revenue at the stated price.

How to interpret the result

At the break-even point, contribution covers fixed costs and operating profit under this model is zero.

Sales above the point add contribution toward profit; sales below it leave some fixed costs uncovered.

Break-even units versus break-even revenue

Actionable break-even units round raw units up to a whole sales target. Standard break-even revenue uses the unrounded raw units multiplied by selling price, so it is not inflated by unit rounding.

Assumptions and limitations

Selling price and variable cost per unit stay constant within the analyzed range.
Fixed costs stay fixed within the period and capacity range.
The sales mix is stable when more than one product is involved.

Common mistakes

Using total cost instead of variable cost in contribution per unit.
Forgetting to round fractional units up for a practical sales target.
Assuming the model captures capacity limits, discounts, taxes, or changing costs automatically.

Frequently asked questions

Contribution per unit is zero, so no sales volume can cover fixed costs under those inputs.

Keep the exact result for analysis, but round up to the next whole unit when products cannot be sold fractionally.

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Pricing & Profit

Profit Margin Formula

Calculate the percentage of selling price that remains after subtracting cost.

Profit margin (%) = (Selling price − Cost) ÷ Selling price × 100

Learn the formula