Break-Even Point

This formula finds how many units you must sell so that total revenue exactly equals total cost. It works because each unit sold contributes an amount equal to the selling price minus the variable cost, and that contribution is used to recover the fixed costs. When the accumulated contribution has paid back the fixed costs, the business has broken even.

Use this when you need to know the sales volume required to avoid a loss, such as for a new product, a small business, or a project proposal. It is also useful for comparing pricing or cost changes and seeing how they affect the number of units needed to cover costs.

• Using total sales revenue instead of contribution per unit (price minus variable cost)
• Forgetting that fixed costs do not change with the number of units sold
• Applying the formula when price per unit is less than or equal to variable cost, which makes break-even impossible