Break Even Calculator

Quick answer

Break-even units = fixed costs ÷ (price per unit − variable cost per unit). With £2,000 a month of fixed costs, selling at £50 with £30 variable costs, you must sell 2,000 ÷ 20 = 100 units a month before making any profit.

Use the break even calculator above

Pop in three numbers and the tool does the rest: your total fixed costs, the price you charge per unit, and what each unit costs you to make or deliver. It returns the number of units you must sell to break even, the sales revenue that represents, and your contribution per unit. Change any figure and the answer updates, so you can test a price rise or a rent increase in real time.

How break-even analysis actually works

Break-even is the point where total revenue equals total costs. Below it you are making a loss; above it, every extra sale is profit. The whole thing rests on splitting your costs into two types.

Fixed costs stay the same whether you sell one unit or a thousand: rent, insurance, software subscriptions, salaries, accountancy fees. Variable costs rise with each sale: materials, packaging, payment-processing fees, delivery, the hours of labour tied directly to one job.

The gap between your selling price and your variable cost per unit is the contribution margin — the slice of each sale that is left over to "contribute" towards covering your fixed costs. Once your accumulated contribution equals your fixed costs, you have broken even.

The core formula is simple:

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

The bottom half of that sum is your contribution per unit. To get the break-even figure in money rather than units, multiply the result by your selling price, or use the revenue version:

Break-even revenue = Fixed costs ÷ Contribution margin ratio, where the contribution margin ratio is contribution per unit ÷ selling price.

This is the heart of cost volume profit analysis: it links your costs, your sales volume and your profit in one view, so you can see how a change in any one of them moves the others. It works just as well for a service business — treat one billable job, one client month, or one booked day as a "unit".

Worked example: a candle maker

Imagine Priya runs a small candle business from a rented unit. Her fixed costs are £1,800 a month (rent, insurance, her website and a parcel of marketing). Each candle sells for £18. The wax, wick, jar, label and packaging cost her £6 a candle, and card-processing fees come to about £0.50, so her variable cost is £6.50.

• Contribution per candle = £18 − £6.50 = £11.50
• Break-even units = £1,800 ÷ £11.50 = 156.5, so 157 candles a month
• Break-even revenue = 157 × £18 = £2,826 a month

Until Priya sells her 157th candle each month, she is running at a loss. Candle number 158 onwards earns her £11.50 of profit each. If she wants a £1,000 monthly profit, she adds it to fixed costs: (£1,800 + £1,000) ÷ £11.50 = 244 candles.

Worked example: a freelance designer

Now take Marcus, a freelance designer. His "unit" is a billable day. He wants to cover £2,400 of monthly overheads — software, a co-working desk, pension, insurance and his accountant. He charges £350 a day. His variable cost per day is low: roughly £20 in stock images, fonts and admin time he could otherwise bill.

• Contribution per day = £350 − £20 = £330
• Break-even = £2,400 ÷ £330 = 7.3, so 8 billable days a month

Eight booked days covers his costs; everything beyond that is take-home before tax. If Marcus is unsure what a day really needs to be worth, our contractor day rate calculator and hourly rate calculator help you reverse-engineer a rate from the income you actually want.

Where VAT and tax fit in

Break-even is a pre-tax, cash-cost concept, but two UK realities can distort it. First, VAT. If you are VAT-registered, work in net (ex-VAT) prices on both sides of the sum — charging £18 including VAT is really £15 of revenue to you at the standard 20% rate. Mixing gross and net figures is the fastest way to a wrong break-even. The VAT calculator strips VAT out cleanly so your prices and costs are on the same basis.

Second, the contribution you earn above break-even is profit, and profit is taxable. A sole trader pays Income Tax and Class 4 National Insurance on it; a limited company pays Corporation Tax. Knowing your break-even tells you what is left to be taxed — check the bill with our self-employed tax calculator or corporation tax calculator once you have a profit figure.

Turning break-even into a real plan

A single break-even number is a snapshot. To make it useful, stress-test it:

• Test a price change. Even a small rise lifts contribution per unit and lowers your break-even volume sharply — often more than cutting costs would.
• Test a cost shock. If a supplier raises materials by 15%, or your rent jumps, re-run the figure so you know how many more sales you must find just to stand still.
• Add a target profit. Treat the profit you want as an extra fixed cost. That gives you a sales target, not just a survival line.
• Map it to time. Divide the break-even units by your trading days to see the daily sales rate you need. "157 candles a month" becomes "about 6 a day", which is far easier to judge against reality.

Break-even pairs naturally with forward planning. Feed the volume into a cash flow forecast to check you can actually fund the stock and overheads before the sales arrive, and use a profit margin calculator to see how much of each sale survives once everything is paid.

For broader UK business support, the government's Business Support Helpline and the free guides at MoneyHelper are reliable, non-commercial starting points.

Common mistakes people make

• Hiding variable costs in fixed. Packaging, payment fees and delivery feel like overheads but scale with sales. Leaving them out understates your break-even.
• Forgetting your own labour. If your time is the product, value it. A service that breaks even only because you are working unpaid is not really breaking even.
• Ignoring seasonality. An annual break-even can look comfortable while you bleed cash in quiet months. Run it monthly.
• Treating it as static. Costs and prices move. A break-even from last year is a guess about this one — refresh it whenever a key number changes.
• Mixing VAT-inclusive and VAT-exclusive numbers. Always compare like with like.

These estimates are for guidance only and are not personal tax or financial advice; check your own figures or speak to an accountant before making decisions.

Who should use this calculator

This finds the point at which a business or product stops losing money — the number of units where total contribution finally covers fixed costs. It is the first calculation to run before launching anything, because it converts a vague hope into a specific, testable target.

The concept that does the work is contribution per unit: selling price minus variable cost. That is what each sale contributes towards fixed costs. If contribution is zero or negative, no volume will ever break even — selling more simply loses more, which is a failure mode businesses fall into surprisingly often.

What this calculator assumes

• Contribution per unit = price − variable cost, and break-even = fixed costs ÷ contribution.
• Fixed costs stay constant across the volume range considered.
• Variable costs are constant per unit, with no bulk discounts or scale effects.
• Price is constant across all units, with no discounting.
• Everything produced is sold.

Limitations — what it does not cover

• Step costs. Fixed costs are only fixed within a range — another member of staff or a larger unit moves the whole break-even point.
• Cash flow timing. A business can be past break-even on paper and still fail, because customers pay later than suppliers demand.
• Multiple products with different contributions and a shifting sales mix.
• Volume discounts and price elasticity — selling more usually means selling cheaper.
• VAT, which is not yours and should be excluded from both price and cost.
• Tax on the profit earned beyond break-even.

Related calculators

Once you know your break-even, line it up with the rest of your numbers: work out the profit on a job with the profit and loss calculator, set a sensible selling price with the markup calculator, and plan ahead with the cash flow forecast.

How price changes move the target

Set the price with the margin calculator, sanity-check demand, then see what the profit means after tax with the self-employed calculator or corporation tax calculator.