Formula
Each sale contributes the price minus the variable cost. Break-even units are the fixed costs divided by that contribution, rounded up:
Units = fixed costs / (price − variable cost per unit)
Revenue at break-even is that unit count multiplied by the price.
Assumptions
- Every unit sells at the same price.
- Variable cost per unit does not change.
- Fixed costs are covered only by this product.
Worked example
$10,000.00 of fixed costs, a $40.00 price, and $15.00 variable cost break even at 400 units.
Input definitions
- Fixed costs
- Costs you pay even if you sell nothing.
- Contribution
- Price minus variable cost, the amount each unit contributes toward fixed costs.
Limitations
This ignores taxes, discounts, unsold inventory, and a mix of products with different margins.
Questions
Why is the unit count rounded up?
A fraction of a unit does not cover the remaining fixed cost, so the next whole unit is required.
What if the price equals the variable cost?
There is no contribution, so no number of units can cover the fixed costs.