Break-Even Analysis: Formula, Chart and Worked Example

The break-even formula and contribution margin, a worked example, and the break-even chart where total revenue meets total cost.

Break-even analysis finds the point at which a business's revenue exactly covers its costs — the sales level at which it stops losing money and starts making it. It is one of the first questions any founder or lender asks, and one of the most useful sanity checks in a financial model. Here is the formula, a worked example, and the chart that makes it click.

Definition

The break-even point is the sales volume, in units or revenue, at which total revenue equals total cost, so profit is exactly zero. Below it the business loses money; above it, each additional sale contributes profit.

The break-even formula

Break-even depends on three numbers: the price per unit, the variable cost per unit, and fixed costs. The difference between price and variable cost is the contribution margin — the amount each sale contributes toward covering fixed costs. Break-even units = fixed costs ÷ contribution margin per unit. Once fixed costs are covered, every further unit's contribution drops to the bottom line.

Item	Value
Price per unit	$50
Variable cost per unit	$20
Contribution margin per unit	$30
Fixed costs	$150,000
Break-even units (150,000 / 30)	5,000
Break-even revenue (5,000 x $50)	$250,000

Break-even calculation — worked example

The break-even chart

Plotting total revenue and total cost against units sold shows the break-even point where the two lines cross. Below the crossing, the cost line sits above revenue (a loss); above it, revenue pulls ahead (a profit). The vertical gap between the lines at any volume is the profit or loss at that level.

Values in $000s. The lines cross at 5,000 units ($250k) — the break-even point.

Using break-even in decisions

Break-even answers practical questions: how many units must we sell to survive; how far can volume fall before we lose money (the margin of safety); and how a price change or a fixed-cost cut moves the threshold. A lower break-even point means a more resilient business — which is why raising contribution margin or cutting fixed costs is so powerful.

Break-even and cash

One caution: accounting break-even is not the same as cash break-even. Depreciation is a fixed cost that uses no cash, while debt repayments are a cash cost that never appears in the profit calculation. For survival, model the cash break-even too — the point where cash inflows cover cash outflows.

Model it automatically

EasyFinancialModels computes contribution, break-even and the payback period inside every model, and shows the cash view alongside the accounting view. Build a financial model free for up to 3 years and find the volume your business needs to turn profitable.

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About the author

Every model is built and reviewed by the project's Financial Advisor — a Fellow Chartered Accountant (FCA), Chartered Global Management Accountant (CGMA) and Associate Chartered Management Accountant (ACMA) with around two decades of corporate finance, audit and accounting experience, designing investor-grade financial models across industries. Full credentials and background are available on LinkedIn. More about the author →

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