Break-Even Formula
Break-Even Units = Fixed Costs ÷ Contribution Margin per Unit
Contribution margin per unit is calculated by subtracting variable cost per unit from selling price per unit.
Business Calculator
Break-Even Calculator
Calculate your break-even point, break-even sales revenue, contribution margin, margin of safety, and the sales required to achieve a target profit.
Break-Even Analysis
Enter your fixed costs, selling price, variable cost, and expected sales volume.
Costs that generally do not change with production volume.
Expected number of units sold.
Profit you want the business to achieve.
Break-Even Units
1,250
Units that must be sold to break even.
Break-Even Sales
KSh 1,250,000
Revenue required to cover costs.
Contribution Margin
KSh 400
Contribution earned per unit.
Contribution Margin %
40%
Contribution as a percentage of sales.
Expected Revenue
KSh 2,000,000
Expected Profit
KSh 300,000
Margin of Safety
37.5%
Break-Even Results
| Metric | Result | Meaning |
|---|---|---|
| Fixed costs | KSh 500,000 | Costs that remain relatively stable regardless of units sold. |
| Selling price per unit | KSh 1,000 | Revenue generated from each unit sold. |
| Variable cost per unit | KSh 600 | Cost that varies with each unit produced or sold. |
| Contribution per unit | KSh 400 | Selling price minus variable cost. |
| Break-even units | 1,250 | Units required for total revenue to equal total costs. |
| Break-even sales | KSh 1,250,000 | Revenue needed to reach the break-even point. |
| Target-profit units | 2,000 | Units required to achieve the target profit. |
| Target-profit sales | KSh 2,000,000 | Revenue required to achieve the target profit. |
Revenue and Cost Analysis
Expected revenueKSh 2,000,000
Total expected costsKSh 1,700,000
Expected profitKSh 300,000
What Is the Break-Even Point?
The break-even point is the level of sales at which a business's total revenue equals its total costs. At this point, the business has neither a profit nor a loss. Sales above the break-even point can generate a profit when the assumptions used in the calculation remain valid.
Break-Even Sales Formula
Break-Even Sales = Fixed Costs ÷ Contribution Margin Ratio
The contribution margin ratio is contribution margin per unit divided by the selling price per unit.
Understanding Your Results
Break-Even Units
This is the number of units that need to be sold before the business begins generating an operating profit under the stated assumptions.
Contribution Margin
Contribution margin shows how much each sale contributes toward covering fixed costs and then generating profit.
Margin of Safety
Margin of safety indicates how much expected sales can fall before reaching the break-even level.
Target Profit
Target-profit analysis estimates the number of units or amount of revenue needed to earn a specified profit.
Fixed Costs
Examples include rent, salaries, insurance, software subscriptions, equipment leases, and other relatively fixed operating expenses.
Variable Costs
Examples can include materials, packaging, transaction costs, production inputs, and sales-related costs that increase with volume.
Example Break-Even Calculation
Suppose a business has fixed costs of KSh 500,000, sells each unit for KSh 1,000, and has a variable cost of KSh 600 per unit.
Contribution
KSh 400
Contribution ratio
40%
Break-even units
1,250 units
Break-even sales
KSh 1,250,000
How Businesses Use Break-Even Analysis
Pricing Decisions
Compare selling prices and contribution margins to understand how pricing decisions affect required sales volume.
New Products
Estimate the sales volume required for a new product or service to cover its expected costs.
Business Planning
Use break-even analysis as one input when preparing budgets, forecasts, and operating plans.
Cost Control
Assess how changes in fixed or variable costs could affect the amount of revenue required to become profitable.
Sales Targets
Calculate the number of units or revenue needed to achieve a desired profit target.
Investment Decisions
Compare different operating scenarios before committing to major costs, capacity expansions, or new facilities.
Break-Even Calculator FAQs
What is a break-even point?
The break-even point is the sales level at which total revenue equals total fixed and variable costs. At break-even, profit is zero.
How do I calculate break-even units?
Divide total fixed costs by contribution margin per unit. Contribution margin per unit is selling price per unit minus variable cost per unit.
What is contribution margin?
Contribution margin is the amount remaining from sales revenue after variable costs are deducted. It contributes toward covering fixed costs and generating profit.
What happens if variable cost equals the selling price?
The contribution margin becomes zero. In a simple break-even model, fixed costs cannot be recovered through unit sales because each unit contributes nothing toward fixed costs.
What happens if variable cost is higher than the selling price?
Each additional unit creates a negative contribution. The business would generally need to increase its selling price, reduce variable costs, or change its cost structure before a conventional break-even point can be reached.
What is margin of safety?
Margin of safety measures the amount by which expected or actual sales exceed break-even sales. A larger margin generally provides more protection against a decline in sales.
Can the calculator calculate a target profit?
Yes. The calculator estimates the units and sales revenue required to cover fixed costs and achieve the target profit entered.
Is break-even analysis suitable for every business?
Break-even analysis is most straightforward when costs and selling prices can reasonably be represented using fixed and variable components. Businesses with complex pricing, multiple products, or highly changing costs may require more detailed financial modelling.
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