Break-even calculator, 2026/27

How this is calculated

Break-even analysis splits costs into fixed costs, which do not change with sales volume such as rent, insurance and salaried staff, and variable costs, which move directly with each unit sold such as materials and sales commission. The contribution per unit is the selling price minus the variable cost, and it is this contribution that pays off fixed costs before any profit is made.

The break-even point in units is fixed costs divided by contribution per unit. Multiplying that by the selling price gives break-even revenue. Adding a target profit figure to fixed costs before dividing shows how many units are needed to hit a specific profit goal, which is the same formula used to set sales targets for the year.

The contribution margin percentage, contribution divided by selling price, shows how much of every pound of sales is available to cover fixed costs and then profit; a low margin means small changes in price or cost have an outsized effect on the break-even point.

Why this matters for a small company

Many director-run companies price products or day rates without ever calculating the volume needed to cover overheads such as office costs, software subscriptions and any employed staff. Break-even analysis turns a vague sense of 'we need to sell more' into a specific number that budgeting and cash flow forecasts can be built around.

It is also the fastest way to test a pricing decision. A small cut in selling price can raise the break-even volume by far more than intuition suggests, because the cut comes straight off contribution, not off revenue.

Limitations to bear in mind

The model assumes a single product or a constant sales mix, a constant selling price regardless of volume, and fixed costs that genuinely stay fixed. In reality, discounts for larger orders, step changes in fixed costs such as needing extra premises, and seasonal cost variation all mean the real break-even point will move around the figure shown here.

Use the result as a planning benchmark alongside a full cash flow forecast, particularly if you have significant upfront stock or capital spending that this per-unit model does not capture.

What is contribution margin?

Contribution margin is the amount left from each sale after variable costs are deducted, expressed either in pounds per unit or as a percentage of selling price. It is what is available to cover fixed costs and then generate profit.

What happens if my variable cost is higher than my selling price?

No volume of sales will ever cover fixed costs, because each additional sale loses money rather than contributing towards overheads. You would need to raise the price, cut the variable cost, or stop selling that product.

Does break-even analysis account for tax?

No. It works with pre-tax operating profit only. Once you are consistently trading above break-even, use a corporation tax calculator to estimate what the company will owe on the resulting profit.

How often should I recalculate my break-even point?

Whenever fixed costs, prices or key variable costs change materially, and at least once a year during budgeting, since rent reviews, staff pay rises and supplier price increases all shift the numbers.