The break-even point formula
Break-even units = fixed costs ÷ (price per unit − variable cost per unit)
Break-even sales = break-even units × price per unit
The bottom part, price minus variable cost, is the contribution margin: what each sale contributes toward your fixed costs. Our guide to contribution margin explains it in more depth.
A worked example
A candle seller pays $1,200 a month in fixed costs: market fees, insurance and a storage unit. Each candle sells for $8 and costs $3 to make, including the jar, wax and wick.
- Contribution per candle: $8 − $3 = $5
- Break-even: $1,200 ÷ $5 = 240 candles a month
- Break-even sales: 240 × $8 = $1,920
- To make $500 profit on top: ($1,200 + $500) ÷ $5 = 340 candles
Fixed costs vs variable costs
| Fixed (same whatever you sell) | Variable (per item sold) |
|---|---|
| Booth or market fees | The product’s cost or ingredients |
| Rent, storage, insurance | Packaging and bags |
| Software subscriptions | Card processing fees |
| Your own salary, if fixed | Commission per sale |
Card fees are a percentage of each sale, so they belong in the variable cost. The payment fee calculator shows what they come to.
Using break-even to decide
- Is a market worth the fee? A $150 booth fee at $5 contribution per item needs 30 sales just to cover the booth.
- What does a price change do? Raising the candle to $9 lifts contribution to $6 and drops break-even to 200.
- Can you afford a new cost? Add it to fixed costs and see how many extra sales it needs.
Working out your variable cost per item starts with your cost of goods sold.
Frequently asked questions
What is the break-even point formula?
Break-even units = fixed costs ÷ (price per unit − variable cost per unit). Break-even sales in dollars = break-even units × price.
What counts as a fixed cost?
Costs that don’t change with how much you sell in the period, like a booth fee, rent, insurance or software. Variable costs, like ingredients or the item’s cost, go up with each sale.
What if my price is below my cost per unit?
Then each sale loses money and you can never break even. Raise the price or lower the cost per unit.