Break-even calculator
Enter your fixed costs, your sales and your variable costs: see the break-even sales, the day of the year you reach it and your margin of safety.
Break-even sales
£100,000
contribution margin ratio: 60%
- Break-even point (days of trading)
- 240
- Margin of safety
- £50,000
- Profit before tax
- £30,000
Break-even is reached after 8 months of trading: beyond that, every sale makes a profit.
How we calculated it
Break-even = fixed costs ÷ contribution margin ratio
£60,000 ÷ 60% = £100,000
The break-even day assumes sales spread evenly over a 360-day year.
The break-even point is the level of sales at which a business covers all its costs and makes neither profit nor loss. Below it every month costs money; above it, each sale contributes to profit. It is the first figure a bank or a partner will ask about a business plan.
The calculation separates costs into two families: fixed costs, paid whatever happens, and variable costs, which rise with each sale. Enter annual figures excluding VAT.
How to use it
- Enter your fixed costsRent, salaries, insurance, software, loan repayments: what you pay even in a month with no sales.
- Enter your salesAnnual sales excluding VAT, actual or forecast.
- Enter your variable costsStock, materials, commissions, delivery: everything that grows with sales. They must be lower than sales.
- Read the resultBreak-even sales, the day you reach them, the margin of safety and the profit appear instantly, with a verdict.
The formula
Contribution margin = sales − variable costs. The contribution margin ratio is that margin divided by sales. Break-even = fixed costs ÷ contribution margin ratio.
With 60,000 of fixed costs, 150,000 of sales and 60,000 of variable costs: margin 90,000, ratio 60%, break-even 60,000 ÷ 0.60 = 100,000.
The margin of safety, 150,000 − 100,000 = 50,000, is how far sales can fall before the business makes a loss. The profit is 90,000 − 60,000 = 30,000.
The break-even day
If sales are spread evenly over the year, break-even is reached at 100,000 ÷ 150,000 × 360 = day 240, at the end of the eighth month. A seasonal business reaches it at a different date, but the amount stays the same.
Three ways to lower it
- Reduce fixed costs: each pound saved lowers break-even by more than a pound.
- Raise prices, which increases the contribution margin ratio.
- Lower variable costs, by buying better or reducing waste.
With the same data but sales of 90,000 and variable costs of 36,000, the ratio is still 60% and break-even still 100,000: the business would be 10,000 short.