Tools / Break-even calculator
Break-even calculator
Put in what you charge, what each unit costs you and what you spend every month. It shows how many you need to sell before the business makes money. Nothing you type is saved or sent anywhere.
The price a customer pays for one.
Materials, packaging, any postage you cover, and payment or marketplace fees.
What you pay every month whatever you sell: software, insurance, space, a set ad budget.
Optional. Put in a wage to see what paying yourself would take.
Your break-even point
40 units a month
$1,280 in sales a month, about 9 a week. Each unit leaves $21 towards your fixed costs, 66% of the price.
The break-even formula
Each unit you sell leaves some money after its own costs. That leftover is the contribution margin, and the break-even point is how many units it takes for those leftovers to pay the fixed costs.
Break-even units = fixed costs ÷ (price per unit − variable cost per unit)
Break-even sales = fixed costs ÷ ((price − variable cost) ÷ price)
Take candles sold at $32 each. Each one costs $11 to make and send out: wax, jar, wick and fragrance, the box, and the payment fee. Fixed costs are $840 a month for studio space, the website and insurance.
- Each candle leaves $32 − $11 = $21.
- $840 ÷ $21 = 40 candles a month to break even.
- 40 × $32 = $1,280 in sales a month.
- To make $1,000 a month on top: ($840 + $1,000) ÷ $21 = 87.6, so 88 candles and $2,816 in sales.
Round the units up. If the sum comes to 39.2, you need to sell 40, because you can’t sell part of a candle.
Fixed costs and variable costs
A cost is variable if it comes with each sale, and fixed if you pay it every month whatever you sell.
- Variable costs include materials, packaging, postage you pay, payment processing fees, marketplace fees per order, and anyone you pay per piece.
- Fixed costs include rent or studio space, website and software subscriptions, insurance, equipment repayments, an accountant, and a set monthly ad budget.
Fees charged as a percentage of the price are variable. Work them out on your price and add them to the cost per unit. Leaving them out makes break-even look closer than it is.
Reading the break-even chart
The dotted line is your fixed costs, the same every month. The dashed line is total costs: it starts at the fixed costs and rises by the variable cost with every unit. The solid line is sales, starting at zero and rising by the price.
The break-even point is where the solid line crosses the dashed one. To the left of it, the shaded gap is the loss at that volume; to the right, it is the profit. A higher price makes the sales line steeper and a lower cost per unit makes the cost line flatter, and either one moves the crossing to the left.
Whether you can sell that many
The calculator assumes the sales happen. It can’t tell you whether 40 people a month want your candles at $32, and that decides whether the numbers above ever turn into money.
Draper starts with that question. It works through your idea with you in order, beginning with whether people want it and who they are, then the plan, the brand, the product and the website, and later putting it in front of real people. Paste your break-even numbers in with the button above and Draper builds them into its analysis.
If you are deciding whether to leave a job for this, the when can you quit your job calculator shows the month the income covers your bills. The market size calculator checks whether enough people have the problem in the first place.
For profit at a given number of sales, use the profit calculator. If you make what you sell, the craft pricing calculator works out a price that pays for your time.
Break-even questions
The break-even point is the number of sales at which a business takes in exactly what it spends, so it makes neither a profit nor a loss. Below it the business loses money; above it, each sale adds profit. It is usually counted per month, in units sold or in sales dollars.
Break-even analysis works out how much a business has to sell to cover its costs. It splits costs into fixed costs, paid every month whatever you sell, and variable costs, which come with each sale. Dividing the fixed costs by what each sale leaves over gives the number of sales needed to cover them.
Break-even point in units = fixed costs ÷ (price per unit − variable cost per unit). With $840 a month in fixed costs, a $32 price and an $11 cost per unit, the break-even point is 840 ÷ 21 = 40 units a month. Round up, because part of a unit covers nothing.
Break-even sales = fixed costs ÷ contribution margin ratio, where the ratio is (price − variable cost) ÷ price. With $840 a month in fixed costs, a $32 price and an $11 cost per unit, the ratio is 21 ÷ 32 = 0.65625, so break-even sales are 840 ÷ 0.65625 = $1,280 a month, the same as 40 units at $32.
Contribution margin is what each sale leaves after its own variable costs: the price minus the variable cost per unit. A $32 product that costs $11 to make and sell has a contribution margin of $21. That $21 pays towards the fixed costs, and once they are covered it is profit. As a ratio of the price, it is $21 ÷ $32 = 66%.
Variable costs rise with each sale: materials, packaging, postage you pay, and payment or marketplace fees. Fixed costs stay the same each month whatever you sell: software, insurance, rent or studio space, equipment repayments and a set monthly ad budget. Advertising charged per order counts as a variable cost.
Raise the price, lower the variable cost per unit, or cut fixed costs. A $1 rise in price and a $1 cut in the cost per unit lower the break-even point by the same amount, because both add $1 to what each sale leaves. Which one to pull depends on what your customers and suppliers will accept.
Break-even covers the business’s own costs, and your wage comes on top. To see what paying yourself takes, add the monthly amount you want to the fixed costs before dividing: (fixed costs + wage) ÷ contribution margin gives the units a month needed to pay you.
The business can never break even, because each sale loses money and selling more makes the loss bigger. Raise the price or bring the cost per unit down until each sale leaves something towards the fixed costs.
Find out whether people want what you sell before you rely on the number. Break-even says how many sales you need, and it cannot say whether that many people will buy. Draper, a start-a-business app, works through this with you in order: whether people want the idea and who they are first, then the plan, brand, product and website.
Once you’ve landed on an idea, Draper works with you to turn it into a real thing.
It checks the idea holds up, designs the brand, builds the website and gets it in front of real people.