Marketing ROI

How to Calculate Your Break-Even Point (With Examples)

By the ToolFees team · Updated November 2026

Your break-even point is fixed costs divided by the contribution margin per unit — price minus variable cost. With $3,000 of monthly fixed costs, a $50 price and $30 of variable costs, you break even at exactly 150 units, or $7,500 of revenue: below it the business loses money, and every unit above it adds $20 of profit. This guide walks through the method step by step, works two full examples, shows how to build in a profit target, and tests how sensitive the answer is to small changes in price and cost.

Step 1: separate your costs into fixed and variable

Break-even analysis starts by sorting every cost into one of two piles. Fixed costs are owed whether you sell one unit or a thousand: rent, salaries, software subscriptions, insurance. Variable costs ride along with each sale: materials, packaging, postage, and the per-sale platform fees — if you sell through a marketplace, its percentage belongs here, as our Etsy fees guide shows fee by fee. The sorting matters because the two piles are covered in completely different ways: variable costs are covered by each sale itself, fixed costs are covered by what is left over.

Step 2: work out the contribution margin

What is left over from each sale, after its variable costs, is the contribution margin — the amount each unit contributes toward the fixed pile:

A $50 product with $30 of variable costs contributes $20 per sale. Until the fixed pile is covered, that $20 is not profit — it is repayment. Only after break-even does the same $20 become profit, which is why this single number drives so many business decisions.

Step 3: divide

The same arithmetic serves a service business: $12,000 of fixed costs, a $120 price and $70 of variable costs give a $50 contribution margin and a break-even point of 240 units — $28,800 of revenue. The formula does not care what a “unit” is; it works for products, bookings, subscriptions and billable projects alike. The break-even calculator runs all three steps at once for your own figures.

Adding a profit target

Break-even is the floor, not the goal — but the goal uses the same machinery. Treat your target profit as extra fixed cost and divide again: the shop above, wanting $2,000 of profit on top of break-even, must cover $5,000 with its $20 contribution margin, which means 250 units and $12,500 of revenue. Every further $20 of desired profit is exactly one more unit. This is the honest way to set sales targets, because it prices the target in units the team can count rather than revenue they can only estimate.

How sensitive is your break-even point?

Source: Break-even units = fixed costs ÷ (price − variable cost per unit), applied to each scenario. Last verified: November 2026

Small moves in price or variable cost swing the break-even point hard, because they act on the margin rather than the total — a 10% price cut raises the required volume by a third in this example. That sensitivity is the practical argument for defending price and shaving variable costs before chasing volume. It is also the same logic advertisers use in miniature: break-even ROAS is just this formula wearing a margin, as our ROAS guide explains.

The assumptions to keep in sight

Break-even analysis is deliberately simple, and its simplifications should stay visible. It assumes one price and one variable cost — businesses with many products should run it per product line, or with a realistic sales-weighted average margin. Real costs are rarely perfectly fixed or variable: postage gets cheaper at volume, and a second employee arrives as a step in fixed costs, moving the break-even point the day they start. Re-run the numbers whenever a step changes, whenever prices change, and whenever a platform changes the fees hiding inside your variable costs — the answer is a snapshot, not a permanent feature of the business.

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