Before spending a penny on stock, equipment, or marketing, there's one number every business plan should answer: how many units do you need to sell before you stop losing money? That number is your break-even point — and it's one of the simplest, most useful calculations in business finance.
This guide explains exactly what break-even point means, the formula behind it, and how to use it when pricing a product or evaluating whether a business idea actually works.
⚖️What is the break-even point?
The break-even point is the level of sales — in units or in revenue — at which your total revenue exactly equals your total costs. Below this point, you're making a loss. Above it, every additional sale contributes to profit.
It's the financial equivalent of a tightrope: below break-even, you're losing money on the business as a whole, no matter how good any individual sale looks. Above it, the business as a whole is profitable.
The two types of cost you need to know
Break-even analysis depends on splitting your costs into two categories:
Fixed costs — expenses that stay the same regardless of how many units you sell. Examples: rent, business rates, salaries for permanent staff, insurance, software subscriptions, loan repayments. You pay these whether you sell 1 unit or 1,000.
Variable costs — expenses that change directly with each unit sold. Examples: raw materials, packaging, manufacturing labour, shipping, payment processing fees. Sell zero units, and these costs are zero; sell more, and they scale up proportionally.
| Cost type | Examples | Behaviour |
|---|---|---|
| Fixed costs | Rent, salaries, insurance, software | Constant, regardless of sales volume |
| Variable costs | Materials, packaging, shipping, transaction fees | Scales directly with units sold |
Getting this split right matters — a cost that's actually semi-variable (like a part-time staff member whose hours increase with demand) needs to be allocated thoughtfully, or your break-even point will be inaccurate.
The break-even formula
Break-even (units) = Fixed Costs ÷ (Selling Price per Unit − Variable Cost per Unit)
The bottom part of that formula — selling price minus variable cost — has its own name: the contribution margin.
Contribution Margin = Selling Price per Unit − Variable Cost per Unit
The contribution margin is the amount each unit sold "contributes" toward covering your fixed costs. Once enough units have been sold that their combined contribution margins cover your fixed costs entirely, you've reached break-even — and every unit sold after that is pure profit (before tax).
⚖️A worked example
Imagine you're launching a small product business. Your numbers are:
- Fixed costs: £2,000/month (rent, insurance, software)
- Selling price: £25 per unit
- Variable cost: £10 per unit (materials, packaging, shipping)
First, calculate the contribution margin:
Contribution Margin = £25 − £10 = £15 per unit
Then divide fixed costs by the contribution margin:
Break-even (units) = £2,000 ÷ £15 = 133.3 units
→ Round up to 134 units per month
You need to sell 134 units a month just to cover your costs. Sell 133 or fewer, and you're making a loss. Sell 135 or more, and each additional unit contributes £15 toward profit.
You can also express break-even in revenue rather than units:
Break-even (revenue) = Break-even units × Selling Price = 134 × £25 = £3,350/month
This is often more useful when communicating targets to a team — "we need £3,350 a month in sales to cover our costs" is a clearer benchmark than a unit count for some businesses.
How break-even point changes with price
One of the most useful applications of break-even analysis is testing how a price change affects the number of sales you need.
Using the same example (£2,000 fixed costs, £10 variable cost per unit), here's how the break-even point shifts at different selling prices:
| Selling price | Contribution margin | Break-even (units) |
|---|---|---|
| £15 | £5 | 400 units |
| £20 | £10 | 200 units |
| £25 | £15 | 134 units |
| £30 | £20 | 100 units |
| £40 | £30 | 67 units |
Notice how dramatically the break-even point falls as price increases — and how a relatively small price increase can have an outsized effect, because it widens the contribution margin without changing fixed or variable costs at all. This is exactly why break-even analysis is so useful when deciding whether a price increase is worth the risk of losing some customers: even if you sold fewer units at £30 than at £25, you might still reach break-even faster.
£Break-even analysis vs profit margin
Break-even point and profit margin answer different questions, and it helps to be clear on the distinction:
- Break-even point answers: "How many sales do I need before I stop losing money?" It's a volume target.
- Profit margin answers: "Of the money I bring in, how much is profit?" It's a percentage.
You need both. Break-even tells you the minimum viable scale for your business model; profit margin tells you how profitable each additional sale is once you're past that point. For the full breakdown of how margin works — and the difference between markup and margin — see our guide, and our explainer on what profit margin actually means.
When to use break-even analysis
Before launching a new product. Calculate your break-even point before committing to inventory, equipment, or a lease. If the required sales volume is unrealistic given your market size, that's a red flag worth addressing before you spend any money.
When setting prices. Run your break-even calculation at several candidate prices (as in the table above) to see which price points keep your required sales volume realistic.
Before a major cost increase. If your rent goes up, or you're considering hiring, recalculate your break-even point with the new fixed costs. This tells you exactly how many extra sales you need to absorb the increase without affecting profit.
When evaluating a discount or promotion. A discount reduces your contribution margin per unit, which raises your break-even point. Calculate how many additional units you'd need to sell during a promotion just to match the profit you'd make without it — often the answer is a sobering number.
Use the calculator below to model your own fixed costs, variable costs, and selling price. It instantly shows your break-even point in both units and revenue, so you can test different scenarios before committing to a price or cost decision.
Common mistakes in break-even analysis
Mistake 1 — Misclassifying costs. Treating a variable cost as fixed (or vice versa) skews the whole calculation. If a cost genuinely scales with each unit sold, it belongs in variable costs, even if it feels like a "regular" outgoing.
Mistake 2 — Forgetting to include all fixed costs. It's easy to remember rent and obvious overheads but forget software subscriptions, insurance renewals, accountancy fees, or loan repayments. An incomplete fixed cost figure understates your true break-even point.
Mistake 3 — Ignoring break-even when discounting. A 20% discount can increase your break-even point by far more than 20%, because it eats directly into your contribution margin — the part of the price that was covering fixed costs. Always recalculate before running a promotion.
Mistake 4 — Treating break-even as a one-off calculation. Costs change — rent reviews, supplier price increases, new software subscriptions. Revisit your break-even point whenever a significant cost changes, not just when you first launch.
Summary
The break-even point is the sales volume — in units or revenue — at which your total revenue exactly covers your total costs. It's calculated by dividing your fixed costs by your contribution margin (selling price minus variable cost per unit).
| What it tells you | |
|---|---|
| Break-even point (units) | Minimum sales volume to avoid a loss |
| Break-even point (revenue) | Minimum revenue to avoid a loss |
| Contribution margin | How much each sale contributes toward fixed costs |
| Above break-even | Each additional unit contributes to profit |
Every viable business plan should be able to answer "what's our break-even point, and is that volume realistic?" — and the answer should be revisited whenever your prices or costs change.
Use our free calculator to find your exact break-even point in units and revenue, instantly.
⚖️Frequently Asked Questions
What is a break-even point?
The break-even point is the number of units you need to sell (or revenue you need to generate) to exactly cover all your costs — neither making a profit nor a loss. Below this point you are making a loss; above it you are making a profit.
What is the break-even formula?
Break-even units = Fixed Costs ÷ (Selling Price per Unit − Variable Cost per Unit). The denominator is called the contribution margin — the amount each unit sold contributes towards covering fixed costs.
What are fixed costs vs variable costs?
Fixed costs stay the same regardless of how many units you sell — rent, salaries, insurance, software subscriptions. Variable costs change with each unit sold — raw materials, packaging, shipping, payment processing fees. Knowing both is essential for accurate break-even analysis.
How do I use break-even analysis to set my prices?
Enter your fixed costs and variable cost per unit, then experiment with different selling prices to see how your break-even point changes. A higher selling price reduces your break-even point — meaning you need fewer sales to become profitable.
What is the contribution margin and why does it matter?
Contribution margin = Selling Price − Variable Cost per Unit. It is the amount each unit sold contributes toward covering your fixed costs. Once total contributions exceed your fixed costs, every additional unit sold is pure profit. A higher contribution margin means you reach break-even faster.
What are typical fixed costs for a UK small business?
Fixed costs are expenses that remain constant regardless of how many units you sell. Common examples include: rent and rates (£500–£5,000/month), business insurance (£500–£2,000/year), software subscriptions, salaries for permanent staff, and loan repayments. These costs must be covered before your business makes any profit.
How does break-even analysis help with business planning?
Break-even analysis tells you the minimum performance your business needs to survive. It answers critical questions: Can this business model work at realistic sales volumes? What happens if we raise or lower prices? How many units do we need to sell to justify a new hire or piece of equipment? Run multiple break-even scenarios before committing to any major cost.
Last updated June 2026.