This guide is practical and concise—examples first, formulas and caveats after. For quick calculations, jump to the linked calculator.
Break‑Even Basics for Small Shops
Break‑even tells you how many units you must sell (or how much revenue you must generate) to cover your fixed costs. After that point, each extra unit contributes profit equal to your contribution margin.
Core formulas
- Contribution margin (CM) = price − unit variable cost
- CM ratio = CM ÷ price
- Break‑even units = fixed ÷ CM (round up)
- Break‑even revenue = fixed ÷ CM ratio
Example
Fixed costs $1,000/month. Unit variable cost $5. Unit price $12.
CM = 12 − 5 = $7; CM ratio ≈ 58.33%.
Break‑even units = 1,000 ÷ 7 ≈ 143; Break‑even revenue = 1,000 ÷ 0.5833 ≈ $1,714.29.
What to change if BEP is too high
- Raise price if demand allows.
- Reduce variable cost (materials, payment fees, shipping method).
- Lower fixed costs (software, rent, minimum commitments).
Multiple products
Use a weighted‑average CM across your mix. Estimate sales split (e.g., 70/30) and compute a combined CM for planning. The calculator focuses on single‑product scenarios—good for sanity checks.
Step‑fixed costs
Some “fixed” costs jump in steps (e.g., adding another machine or staff member). Treat each step as a new scenario; plot two lines and see where the intersection moves.
Common mistakes
- Using average price when discounting heavily—use the actual planned price.
- Forgetting payment fees in variable cost.
- Assuming demand is constant after a price change—capacity and conversion matter.
Visualize your intersection and round to whole units with the Break‑Even Calculator.