How this number is made
Break-even is the number of sales that cover the bills you pay even if you sell nothing. Each sale contributes the price minus what that unit cost to make or buy. Divide the fixed bills by that contribution.
- Fixed costs are the period you care about: a month, or a year. Do not mix a year of rent with a month of price.
- Variable cost is materials, packaging, and the wholesale price of that unit. A salesperson’s commission per sale belongs here too.
- Round up. You cannot sell a fraction of the last unit to land exactly on zero.
Formula
Contribution = price − variable cost. Units = fixed costs ÷ contribution, rounded up. Break-even revenue = units × price.
Worked example
$8,000 of fixed costs, a $40 price, and $15 of variable cost leaves $25 a unit. Break-even is 320 units. Revenue at that point is $12,800. Unit 321 is the first one that can be profit.
Questions
What if every product has a different price?
This form is one product. For a shop, use an average contribution, knowing that selling the low-contribution items first will miss the count.
Does salary belong in fixed costs?
A salary you pay anyway, yes. An extra wage you hire only because volume rose is variable, and this form will not split one person’s pay in half.