Break-Even and Profit Target Calculator

The break-even point is the level of sales at which total revenue equals total costs, so there is neither a profit nor a loss. Every unit sold beyond break-even contributes directly to profit.

This page is built for planning rather than theory. Alongside break-even it answers the two questions that usually come next: how many units get you to a profit figure you actually want, and what happens to that number if you move the price a couple of dollars.
For the textbook treatment, contribution margin ratio, degree of operating leverage and the short-run shutdown price, use the break-even point calculator. Both pages return the same break-even figure.

The Formula:

Break-Even (units) = Fixed Costs / (Selling Price per unit − Variable Cost per unit)

Break-Even (revenue) = Fixed Costs / Contribution Margin Ratio

Where:

Contribution Margin per unit = Selling Price − Variable Cost

Contribution Margin Ratio = Contribution Margin per unit / Selling Price

Worked Example:

A candle business has:

• Fixed costs: $2,400/month (rent, insurance, equipment)
• Selling price: $25 per candle
• Variable costs: $10 per candle (wax, wicks, jars, packaging)

Contribution margin = $25 − $10 = $15 per candle

Break-even = $2,400 / $15 = 160 candles per month

Break-even revenue = 160 × $25 = $4,000/month

Margin of Safety:

If you sell 200 candles/month:

Margin of safety = 200 − 160 = 40 candles (or $1,000 above break-even)

This means sales can fall 20% before you start losing money.

Target Profit Calculation:

Units needed for target profit = (Fixed Costs + Target Profit) / Contribution Margin

To earn $1,500 profit: (2,400 + 1,500) / 15 = 260 candles

Why price beats cost-cutting

Raise the candle price by $2 to $27 and the contribution margin goes from $15 to $17. Break-even drops from 160 candles to 142 ($2,400 ÷ $17 = 141.2, rounded up). Now instead shave $2 off the variable cost, from $10 to $8: the margin is also $17, and break-even is also 142. Identical.

The difference shows up in what happens next. Cutting $2 of material cost usually means cheaper wax or a thinner jar, and there is a floor to how far that goes. A price rise has no such ceiling, and it lands on every unit you were already selling. The catch is demand: if the $2 costs you more than 11% of your volume you are worse off, which is exactly the number worth testing before you change a price.

Practical Tips:

• Break-even analysis assumes a constant product mix. It changes the moment you sell several products at different margins
• Variable costs change with volume, so revisit the calculation if you are getting bulk material discounts
• Fixed costs are only fixed within a range. Hire a second person or take a bigger unit and the whole line moves up