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Break-Even Calculator

Find the exact sales level where your business stops losing money. Enter fixed costs, price, and variable costs to get break-even units, break-even revenue, and your margin of safety.

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Your Numbers

Rent, salaries (including yours), insurance, software, loan payments.

Materials, COGS, processing fees, commissions, shipping per unit.

Your Break-Even Point

Enter your fixed costs and pricing to see break-even units, revenue, and the chart.

Estimates use simplified linear cost behavior. Real costs step up at capacity limits; treat the output as a planning anchor, not a forecast.

Worked example

A design studio with $21,000 of monthly fixed costs

Illustrative example, not a client outcome. A two-person design studio bills projects at an average of $6,000, with $1,800 of direct cost per project (contract illustrator, stock licenses, processing fees). Fixed costs, including both salaries, are $21,000 a month, and the studio currently bills $42,000 a month.

Inputs

Worked example inputs
Monthly fixed costs$21,000
Pricing modePer unit / job
Price per project$6,000
Variable cost per project$1,800
Current monthly revenue$42,000

Calculator output

Worked example calculator output
Contribution margin per project$4,200 (70%)
Break-even units5 projects a month
Break-even revenue$30,000
Margin of safety29%

$21,000 divided by $4,200 of contribution margin is exactly 5 projects, or $30,000 of revenue. At $42,000 of current revenue, sales could fall about 29% before the studio loses money in a month. Break-even is pre-tax and assumes the owners are paid inside fixed costs.

Methodology

How this calculator works

Standard cost-volume-profit math: each sale contributes its price minus its variable cost toward fixed costs, and break-even is the volume where those contributions equal fixed costs.

Formulas

  • Contribution margin per unit = price - variable cost per unit.
  • Contribution margin ratio = contribution margin / price (or 1 - variable cost % in percent-of-revenue mode).
  • Break-even units = fixed costs / contribution margin per unit, shown rounded up to a whole unit.
  • Break-even revenue = fixed costs / contribution margin ratio.
  • Margin of safety = (current revenue - break-even revenue) / current revenue.

Assumptions

  • Costs behave linearly: fixed costs stay flat and variable cost per unit is constant across the volume range.
  • You classify each cost as fixed or variable, including a realistic owner salary in fixed costs.
  • All figures are monthly and pre-tax. The calculator uses no tax rates.

What it ignores

  • Step costs at capacity limits, such as a second hire or larger space.
  • Seasonality, payment timing and cash flow.
  • Income and self-employment tax on any profit above break-even.

Written by Bryan Martin, CPA, Managing Partner and Founder of Taxstra. Last reviewed October 20, 2026. Taxstra is a CPA firm serving 1,000+ clients in all 50 states.

Educational, not individualized tax advice.

The Break-Even Formula

Two lines of arithmetic that answer an existential question

Break-even analysis answers the question every owner should be able to answer cold: how much do I have to sell before this business stops costing me money? The math is two steps.

First, compute your contribution margin: price per unit minus variable cost per unit. That is the slice of each sale left over to cover overhead after the sale pays for itself. Second, divide monthly fixed costs by that contribution margin. The result is break-even units. Multiply by price and you have break-even revenue.

The percent-of-revenue mode does the same thing without a unit. If variable costs eat 40% of every revenue dollar, your contribution margin ratio is 60%, and break-even revenue is fixed costs divided by 0.60. Service firms, agencies, and anyone with mixed offerings usually find this version more natural.

Key Insight

Fixed costs are a multiplier, not a line item

At a 60% contribution margin, every $1 of new monthly fixed cost requires $1.67 of new monthly revenue just to stay even. At a 30% margin, it requires $3.33. That multiplier is why a casually signed lease or software stack quietly raises the sales bar far more than its sticker price suggests.

Fixed vs Variable Costs

Getting the classification right is most of the work

The calculator is only as good as the split you feed it. Fixed costs do not move with sales in the short run: rent, insurance, salaried staff, software subscriptions, equipment leases, loan payments, and a realistic salary for you. Variable costs scale with each sale: materials and cost of goods, payment processing (typically 2% to 3% of card revenue), sales commissions, shipping, and per-job subcontractor costs.

CostRent, insurance, software
Usually FixedYes
Usually Variable
CostOwner and salaried staff pay
Usually FixedYes
Usually Variable
CostMaterials / cost of goods
Usually Fixed
Usually VariableYes
CostCard processing fees, commissions
Usually Fixed
Usually VariableYes
CostHourly production labor
Usually FixedSometimes
Usually VariableSometimes
CostMarketing
Usually FixedBase budget
Usually VariablePer-lead spend

Two classifications trip people up. Hourly labor is variable only if you actually flex hours with demand; a crew you keep busy regardless is fixed in practice. And marketing is usually a fixed budget decision, but pay-per-lead or affiliate spend that scales with sales belongs in variable costs.

If your books are clean, your profit and loss statement already separates cost of goods sold from operating expenses, which gets you 90% of the way. If they are not clean, the break-even number inherits the mess, which is one of the quieter arguments for professional bookkeeping.

A Worked Example

A design studio finds its number

Worked example (hypothetical, illustrative round numbers)

A hypothetical two-person design studio bills projects at an average of $6,000. Direct costs per project (contract illustrator, stock licenses, processing fees) average $1,800, so contribution margin is $4,200 per project, a 70% ratio. Fixed costs are $21,000 a month: $14,000 of owner and employee salaries, $3,500 of rent and insurance, $2,000 of software and equipment leases, and $1,500 of base marketing.

Break-even is $21,000 divided by $4,200, exactly 5 projects a month, or $30,000 of revenue. The studio currently closes 7 projects a month, $42,000 of revenue, which puts its margin of safety at about 29%: revenue could fall 29% before the studio loses money in a month.

Now the analysis earns its keep. The owners are considering a $4,500-a-month hire. New fixed costs: $25,500. New break-even: 6.1 projects, so effectively 7, their entire current volume. The hire only makes sense if it enables at least 2 additional projects a month within a reasonable ramp. That is a materially better decision framework than "revenue is growing, we can probably afford it."

Reading Your Result

What the three numbers are telling you

Break-even revenue versus current revenue. If your break-even sits above what you reliably sell, you have a structural problem no amount of hustle fixes: cut fixed costs, raise prices, or improve the variable cost per sale. If it sits comfortably below, the question shifts to how much cushion you carry.

Contribution margin. Below roughly 30%, your business is a volume machine: small price changes swing the break-even point violently, and discounting is dangerous. Above 60%, fixed-cost discipline matters more than pricing, because each incremental sale is highly profitable but the overhead base determines survival.

Margin of safety. Under 15% means one lost client or one soft month puts you underwater. Between 15% and 30% is workable with cash reserves. Above 30% you have real strategic freedom: room to experiment with pricing, invest in growth, or absorb a mistake.

Watch Out

Break-even is pre-tax; your life is not

At exactly break-even there is no income tax, but the moment you set a profit target, taxes raise the real bar. A sole proprietor keeping $100,000 also owes self-employment tax of roughly 15.3% on those earnings plus income tax, so the revenue needed to fund a lifestyle is meaningfully higher than the pre-tax math suggests. This is where break-even analysis and tax planning meet: entity choice and retirement contributions change how much revenue your target actually requires.

If your result surprised you in either direction, that is worth a conversation. Our business tax planning service covers the tax side of these targets, and fractional CFO services cover the pricing and cost-structure side.

Beyond Break-Even

Three ways to move the point in your favor

Raise prices before cutting costs. A price increase flows straight into contribution margin. In the studio example above, a 10% price increase (to $6,600) lifts contribution margin to $4,800 and drops break-even from 5 projects to 4.4 with no change in workload. Most owners overestimate how many customers a modest increase costs them and underestimate what the survivors are worth.

Attack the biggest variable cost, not all of them. A 5-point improvement in your largest variable cost (renegotiated supplier terms, a cheaper processor, tighter subcontractor rates) usually beats a dozen small economies, and unlike fixed-cost cuts it improves every future sale automatically.

Convert fixed to variable where you can. Fractional and per-use arrangements (contractors instead of early hires, usage-based software, shared space) lower the break-even point and shift risk onto volume, which is exactly where a young or seasonal business wants it. The trade-off is a higher variable cost per sale, so mature high-volume businesses often run the conversion the other way.

The common thread: break-even is a management dial, not a fact of nature. Businesses that recalculate it before every meaningful decision (a hire, a lease, a price change) compound small structural advantages that never show up in a single month's P&L.

FAQs

Common break-even questions, answered

What is a break-even point?

The break-even point is the sales level at which total revenue equals total costs, so profit is exactly zero. Below it, every month ends in a loss; above it, each additional sale contributes profit. It can be expressed in units (how many things you must sell) or in revenue (how many dollars you must bill). It is the single most useful number for judging whether a price, a cost structure, or a whole business model is viable.

How do you calculate the break-even point?

Break-even units = fixed costs divided by contribution margin per unit, where contribution margin is price minus variable cost per unit. Break-even revenue = fixed costs divided by contribution margin ratio (contribution margin as a percentage of price). Example: $10,000 of monthly fixed costs, a $100 price, and $40 of variable cost per unit gives a $60 contribution margin, so break-even is 167 units or about $16,700 of monthly revenue.

What counts as a fixed cost versus a variable cost?

Fixed costs stay roughly the same regardless of sales volume: rent, salaries, insurance, software subscriptions, loan payments. Variable costs rise and fall with each sale: materials, cost of goods, payment processing fees, sales commissions, shipping, per-job subcontractors. Some costs are mixed (a utility bill with a base charge plus usage). For break-even work, split mixed costs into their fixed and variable pieces, or classify them by their dominant behavior.

What is contribution margin and why does it matter more than gross margin?

Contribution margin is what each sale contributes toward covering fixed costs after its own variable costs are paid: price minus variable cost per unit. It matters because it is the engine of the break-even math. A business with a 20% contribution margin needs five times more revenue to cover the same fixed costs as a business with a 100% contribution margin. Gross margin from your financial statements is a useful approximation, but it can include some fixed production costs, so calculated contribution margin is cleaner for this analysis.

What is margin of safety?

Margin of safety is how far your current sales sit above break-even, usually expressed as a percentage: (current revenue minus break-even revenue) divided by current revenue. A 40% margin of safety means revenue could fall 40% before you start losing money. Under about 15%, small shocks (one lost client, one slow month) push you into losses, which is a signal to cut fixed costs, raise prices, or build cash reserves.

How does break-even analysis apply to a service business?

Use a billable hour, a project, or a client-month as the "unit." Price is your average fee per unit; variable costs are the direct delivery costs per unit (contractor hours, materials, software licensed per client). Fixed costs are your salary needs, rent, admin staff, and tools. The math then answers practical questions: how many client-months cover overhead, and how many more fund the profit you want.

Should I include my own salary in fixed costs?

Yes, and this is the most common mistake in DIY break-even math. If you need $8,000 a month to live, a business that "breaks even" without paying you is actually losing $8,000 a month in economic terms. Put a realistic owner salary in fixed costs so the break-even point reflects a business that can actually support you. If you operate as an S corporation, your W-2 salary belongs there anyway.

How do taxes affect my break-even point?

The classic break-even point is pre-tax: at zero profit there is no income tax to pay. Taxes matter when you set a target profit. If you want $100,000 of after-tax income and face a combined 30% effective rate, you need roughly $143,000 of pre-tax profit, which raises the sales target well above what a pre-tax calculation suggests. This is one reason break-even targets and tax planning belong in the same conversation.

How often should I re-run break-even analysis?

Any time price, costs, or structure change: a rent increase, a new hire, a price change, a new product line, or a supplier cost increase. As a habit, quarterly is a good cadence for a stable business, monthly for one in transition. The number is cheap to compute and expensive to ignore.

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