• What break-even means
  • The two formulas

The break-even point is the level of sales at which total revenue equals total costs, so there's no profit and no loss. To calculate it in units, divide total fixed costs by the contribution margin per unit. To calculate it in sales dollars, divide fixed costs by the contribution margin ratio. Both rest on contribution margin, which is covered in what is contribution margin. This page covers the break-even calculation itself, adding a profit target, and the margin of safety.

Billed publishes this page. Definitions and formulas are quoted from the open textbook OpenStax Principles of Accounting, Volume 2: Managerial Accounting (published February 14, 2019; pages revised April 23, 2026), opened on October 30, 2026.

What break-even means

OpenStax says: "In other words, no profit or loss occurs at break-even because Total Cost = Total Revenue." It describes what happens either side of that point: "For each additional unit sold, the loss typically is lessened until it reaches the break-even point. At this stage, the company is theoretically realizing neither a profit nor a loss. After the next sale beyond the break-even point, the company will begin to make a profit, and the profit will continue to increase as more units are sold."

The two formulas

OpenStax's figures set out both:

  • Break-even in units: "Total Fixed Costs divided by Contribution Margin per Unit"
  • Break-even in sales dollars: "Fixed Costs divided by Contribution Margin ratio"

Contribution margin per unit is the selling price minus the variable cost per unit. The contribution margin ratio is that margin divided by the selling price. Both are explained in the contribution margin guide.

Adding a profit target

Break-even covers costs only. To find the sales needed for a profit, OpenStax says: "The process for factoring a desired level of profit into a break-even analysis is to add the desired level of profit to the fixed costs and then calculate a new break-even point."

Margin of safety

OpenStax defines the margin of safety as the "difference between current sales and break-even sales". It shows how far sales could fall before the business stops covering its costs.

Sample: a yoga studio's monthly break-even

The figures here are a sample, invented for this example. A yoga studio sells single class passes:

  1. Price per pass: $25. Variable cost per pass (instructor pay per class attendee and supplies): $5.
  2. Contribution margin per pass: $25 − $5 = $20. Contribution margin ratio: $20 ÷ $25 = 0.80.
  3. Fixed costs per month (rent, insurance, software): $9,000.
  4. Break-even in units: $9,000 ÷ $20 = 450 passes a month.
  5. Break-even in sales dollars: $9,000 ÷ 0.80 = $11,250 a month. Check: 450 × $25 = $11,250.
  6. With a $3,000 monthly profit target: ($9,000 + $3,000) ÷ $20 = 600 passes, or $15,000 in sales.
  7. Margin of safety at 600 passes a month: $15,000 − $11,250 = $3,750 of sales above break-even.

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Frequently Asked Questions

How do you calculate the break-even point in units?

Divide total fixed costs by the contribution margin per unit. OpenStax's formula is "Total Fixed Costs divided by Contribution Margin per Unit". In this page's sample, $9,000 ÷ $20 = 450 passes.

How do you calculate the break-even point in sales dollars?

Divide fixed costs by the contribution margin ratio. OpenStax's formula is "Fixed Costs divided by Contribution Margin ratio". In this page's sample, $9,000 ÷ 0.80 = $11,250.

What happens after the break-even point?

OpenStax says: "After the next sale beyond the break-even point, the company will begin to make a profit, and the profit will continue to increase as more units are sold."

How do I include a profit goal?

OpenStax says to "add the desired level of profit to the fixed costs and then calculate a new break-even point."

What is the margin of safety?

OpenStax defines it as the "difference between current sales and break-even sales".

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