Break-Even Analysis Example With Full Workings

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Published September 23, 2026 · Updated September 30, 2026

Use this break-even analysis example to follow full workings, realistic scenarios, formulas, mistakes to avoid, and steps for your own numbers.

Break-Even Concepts · Financial Planning · Small Business

If you need a break-even analysis example, use this formula: break-even units = fixed costs ÷ (selling price per unit − variable cost per unit). For example, $12,000 in fixed costs, a $40 price, and a $16 variable cost produce a break-even point of 500 units.

Quick answer

Break-even analysis shows how many units you must sell before your revenue covers every cost. Subtract variable cost from selling price to find contribution per unit, then divide fixed costs by that contribution. The result is your break-even volume. You can also calculate break-even sales dollars by dividing fixed costs by the contribution margin ratio.

The direct answer

The break-even point is where total revenue equals total costs. You have not made a profit or loss. It is a planning target, not a demand prediction.

Start with these three numbers:

• Fixed costs: Costs that stay broadly the same during the period, such as rent, insurance, software, or a salaried manager.
• Selling price per unit: The amount a customer pays for one unit. A unit could be one product, one cleaning visit, one meal, or one project.
• Variable cost per unit: The cost that rises when you sell one more unit, such as materials, packaging, payment fees, or direct labor.

The core calculation is:

Break-even units = Fixed costs ÷ (Selling price per unit − Variable cost per unit)

The amount inside the parentheses is the contribution per unit. It is the money left from one sale after its variable cost. That contribution pays fixed costs first. Once fixed costs are covered, additional contribution becomes operating profit, before any costs that were left out of the model.

Suppose your fixed costs are $12,000 per month. You charge $40 per unit, and each unit has a $16 variable cost. Your contribution is:

$40 − $16 = $24

Now divide fixed costs by contribution:

$12,000 ÷ $24 = 500 units

Check the result by rebuilding the totals. Revenue at 500 units is 500 × $40, or $20,000. Variable costs are 500 × $16, or $8,000. Total costs are $12,000 fixed costs plus $8,000 variable costs, or $20,000. Revenue and total costs match, so the arithmetic works.

If you sell whole units, round a fractional answer up. A result of 500.2 units means you need 501 units to fully cover costs. Rounding down would leave a small shortfall.

You can also calculate the break-even point in sales dollars. First find the contribution margin ratio:

Contribution margin ratio = Contribution per unit ÷ Selling price per unit

In the example, the ratio is $24 ÷ $40, or 60%. Therefore:

Break-even sales dollars = Fixed costs ÷ Contribution margin ratio

$12,000 ÷ 0.60 = $20,000

That matches the 500 units multiplied by the $40 selling price.

A break-even analysis template you can fill in

A useful template names every input, its unit and its period. Copy the rows below into your own worksheet. The example is a fictional monthly service business; replace every amount with your actual collected price and costs. Keep owner pay in fixed costs if it is a planned monthly amount, and do not count it again as per-job labor.

Audit the table: 80 × $200 = $16,000 sales; 80 × $80 = $6,400 variable costs; $16,000 − $6,400 − $7,200 = $2,400 operating profit. Sixty jobs produce $7,200 contribution and reach break-even. If the forecast falls to 55 completed jobs, 55 × $120 − $7,200 = −$600. If price falls to $190 and variable cost stays $80, contribution becomes $110 and $7,200 ÷ $110 = 65.45, so at least 66 whole jobs are needed. Recalculate when either input changes rather than copying last month's result.

This is an operating template. Add separate lines for cash needed before customers pay, taxes, debt principal and equipment purchases; the formula above does not predict bank balance. If your business sells several services, make a row for each and use a documented mix rather than forcing a single high-priced job into every forecast. The multiple-products break-even example shows that next step; the target-profit formula goes beyond zero operating profit.

What changes the answer

The answer changes whenever one of the inputs changes. A higher selling price usually increases contribution per unit, so you need fewer sales to break even. A higher variable cost reduces contribution, so you need more sales. Higher fixed costs also increase the target directly.

Discounts deserve special attention. If you lower the price from $40 to $35 while variable cost remains $16, contribution falls from $24 to $19. With the same $12,000 fixed-cost base, the new break-even calculation is $12,000 ÷ $19 = 631.58, so you need 632 units. The discount added 132 required units compared with the original 500.

Product mix can also change the answer. If you sell several products, each item has its own contribution. You need an assumed sales mix, such as a typical percentage of sales for each product. The resulting break-even point is only as reliable as that mix. If customers shift toward lower-contribution items, your blended break-even target rises.

Time period matters too. Use monthly fixed costs with monthly sales, or annual fixed costs with annual sales. Do not divide annual costs by a monthly contribution unless you deliberately convert the units.

2-3 realistic worked scenarios

Scenario 1: Handmade product shop

You sell candles for $28 each. Wax, fragrance, a jar, labels, and transaction costs total $10 per candle. Monthly fixed costs are $3,600 for a small studio, insurance, software, and other standing expenses.

Contribution per candle:

$28 − $10 = $18

Break-even units:

$3,600 ÷ $18 = 200 candles

Break-even sales:

200 × $28 = $5,600

At 200 candles, revenue is $5,600. Variable costs are 200 × $10, or $2,000. Add $3,600 of fixed costs and total costs equal $5,600. If you sell 240 candles, revenue is $6,720 and total variable costs are $2,400. Profit before any excluded costs is $6,720 − $2,400 − $3,600, or $720.

Scenario 2: House-cleaning service

You charge $180 for a standard cleaning visit. Supplies, travel reimbursement, and visit-specific labor total $90 per visit. Monthly fixed costs are $4,500, including administration, insurance, scheduling software, and other costs that do not rise directly with each visit.

Contribution per visit:

$180 − $90 = $90

Break-even visits:

$4,500 ÷ $90 = 50 visits

Break-even sales:

50 × $180 = $9,000

At 50 visits, revenue is $9,000. Variable costs are $4,500, and fixed costs are another $4,500. Total costs equal $9,000. If you complete 60 visits, revenue is $10,800 and variable costs are $5,400. The resulting operating profit is $10,800 − $5,400 − $4,500 = $900.

Before setting a price, compare this result with your capacity, travel time, and desired pay. You can also read this guide on break-even formulas for units and sales for pricing considerations that sit alongside the break-even math.

Scenario 3: Small restaurant menu item

A restaurant sells a menu item for $16. Ingredients and disposable packaging cost $6 per serving. The restaurant allocates $25,000 of monthly fixed costs to the operation, including rent, salaried management, and other standing expenses.

Contribution per serving:

$16 − $6 = $10

Break-even servings:

$25,000 ÷ $10 = 2,500 servings

Break-even sales:

2,500 × $16 = $40,000

At 2,500 servings, revenue is $40,000. Variable costs are $15,000, and fixed costs are $25,000, giving total costs of $40,000. If the restaurant sells 3,000 servings, revenue is $48,000, variable costs are $18,000, and profit before excluded costs is $48,000 − $18,000 − $25,000 = $5,000.

A real restaurant normally has many menu items, so this single-item example is a clear illustration rather than a complete business forecast. For related pricing work, see the calculate contribution margin or browse the small business guide library.

How to run your own numbers

First, choose a consistent period. Monthly is often practical for a small business, but annual planning can be useful when costs are seasonal. Write down fixed costs for that same period. Include only costs that belong in the decision, and state any assumptions clearly.

Next, define one unit. For a service business, it might be one visit or one project. For a product business, it might be one item or one order. Keep the unit consistent when you calculate price and variable cost.

Then list the variable cost attached to one unit. Include direct materials, packaging, per-transaction fees, delivery costs that occur per sale, and labor that genuinely changes with volume. Do not quietly leave out a cost simply because it is inconvenient to estimate. If a cost is partly fixed and partly variable, split it using a reasonable assumption and label that assumption.

Enter your figures in the MyBreakeven break-even calculator to check the result. You can also do the calculation manually with the formula above. Keep a copy of the inputs so you can test a price change, a cost increase, or a new sales target.

Common mistakes

The first common mistake is using revenue instead of contribution. Fixed costs divided by selling price ignores the cost of delivering each sale and produces a target that is too low.

Another mistake is putting every expense in the wrong category. A monthly software subscription is usually fixed for the period, while packaging per order is variable. The classification should reflect how the cost behaves when one more unit is sold.

Some people forget owner pay, taxes, debt payments, or other relevant items. Whether to include an item depends on the question you are answering. The important point is to decide deliberately and disclose what the calculation excludes.

Do not confuse break-even with a desired income target. To calculate a target-profit volume, add the desired profit to fixed costs before dividing by contribution per unit. With $12,000 of fixed costs, $3,000 of desired profit, and $24 contribution, the target is ($12,000 + $3,000) ÷ $24 = 625 units.

Avoid treating the result as a guarantee. Break-even does not forecast customer demand, seasonality, refunds, stock limits, or sudden cost changes. It is a model built from assumptions.

Finally, check the units and rounding. Monthly costs need monthly volume, and a fractional unit must be rounded up when you need a whole sale. Recalculate whenever price, costs, or the sales mix changes.

Closing takeaways

1. Break-even units are fixed costs divided by contribution per unit.
2. Contribution is selling price minus the variable cost of one unit.
3. Use matching time periods and consistent units in every input.
4. Test price, cost, and sales-mix changes instead of relying on one forecast.
5. Treat the result as a planning tool, not proof that customers will buy.

FAQs

What is the break-even formula?

Break-even units equal fixed costs divided by selling price per unit minus variable cost per unit. In symbols: fixed costs ÷ (price − variable cost).

What if my contribution per unit is zero?

You cannot reach break-even through volume if the selling price equals the variable cost. Every sale contributes nothing toward fixed costs. You must raise the price, lower the variable cost, or change the offer.

Can break-even analysis work for services?

Yes. Define one service unit, such as one visit or project, then estimate its direct variable cost. Use the price and contribution for that unit with the fixed costs for the same period.

Should I include tax in break-even analysis?

Include tax if it is part of the cost or profit measure you are trying to understand. State the treatment clearly. Taxes can depend on business structure and other factors, so a basic break-even model may not capture the full tax position.

How do I calculate break-even with a target profit?

Add the target profit to fixed costs, then divide by contribution per unit. For example, $12,000 fixed costs plus $3,000 target profit, divided by $24 contribution, requires 625 units.

What does a negative break-even result mean?

A negative or undefined result usually means the inputs are inconsistent or contribution is zero or negative. If variable cost is higher than price, each additional sale increases the loss before fixed costs are considered.

How often should I update the calculation?

Update it whenever you change price, supplier costs, wages, fees, fixed overhead, or the expected product mix. A regular monthly review can also reveal whether actual results differ from your assumptions.