# How to work out your break-even point

Break-even units equal fixed costs divided by the profit on each unit after variable costs. Multiply by the price for break-even sales. Add a profit target to the fixed costs to see the sales you need.

Free tool: [Break-even calculator](https://www.pulsify.tech/free-tools/break-even-calculator/). Enter fixed costs, price and variable cost to get break-even units and sales.

## Why it matters

Break-even shows the lowest sales you need to cover costs. Below it you lose money. Above it you make a profit.

It is the quickest test of a price change, a new hire or a new product.

## The steps

1. **List fixed costs.** Rent, salaries, insurance, loan repayments and software. They stay the same if you sell more or less.
2. **List variable costs per unit.** Materials, freight, packaging, card fees and commissions for one unit.
3. **Set the price.** Use the price ex GST. GST is not your revenue.
4. **Work out the contribution per unit.** Price minus variable cost per unit.
5. **Work out break-even units.** Fixed costs divided by contribution per unit.
6. **Work out break-even sales.** Break-even units times price.
7. **Add a profit target.** Add the profit you want to the fixed costs and divide again.
8. **Work out the margin of safety.** Expected sales minus break-even sales, as a share of expected sales.

## Worked example

Example Distribution Pty Ltd has monthly fixed costs of A$18,000. It sells a product at A$50.00 ex GST with a variable cost of A$30.00.

| Item | Working | Result |
| --- | --- | --- |
| Contribution per unit | 50 - 30 | A$20.00 |
| Break-even units | 18,000 / 20 | 900 units |
| Break-even sales | 900 x 50 | A$45,000 |
| Units for a A$4,000 profit | (18,000 + 4,000) / 20 | 1,100 units |
| Margin of safety at 1,200 units | (1,200 - 900) / 1,200 | 25% |

The business needs 900 units a month to break even and 1,100 to make A$4,000. If it sells 1,200 units, sales can fall 25% before it makes a loss.

## Common mistakes

- Putting a mix of products in one calculation.
- Treating wages as variable when they are fixed.
- Using GST-inclusive prices.
- Forgetting that fixed costs step up with growth.

## Common questions

### What if I sell many products?

Use the average contribution per unit for your usual mix, or work out break-even per product line.

### Is break-even the same as profit?

No. At break-even profit is zero.

### How often should I update it?

Whenever prices, costs or rent change.

## Next step

Use the [Break-even calculator](https://www.pulsify.tech/free-tools/break-even-calculator/) first. Then see [Pulsify for finance leaders](https://www.pulsify.tech/solutions/cfo/).

Source: https://www.pulsify.tech/how-to/work-out-your-break-even-point/ (last checked 2026-10-20)