For a simple single-product model, break-even units equal fixed costs divided by selling price minus variable cost per unit. Use the same time period throughout and round fractional units up. The formula is a planning tool, not proof that customers will buy enough to make the business viable.
The break-even formula and its assumptions
The SBA's calculator uses fixed costs divided by price less variable costs. The basic model assumes a meaningful per-unit contribution and a consistent period. Businesses with multiple products, changing capacity costs or mixed margins need a more detailed model. If price minus variable cost is zero or negative, the simple formula does not give a viable positive break-even sales target.
A hypothetical example: 100 sales to cover fixed costs
Assume monthly fixed costs of $600, a $20 selling price and $14 variable cost per sale. Contribution is $6 per sale, so $600 divided by $6 equals 100 units. These are invented teaching inputs, not a real company's costs. At exactly 100 units, this simplified model covers the included costs; it does not include any expense you forgot to enter.
| Input | Hypothetical value |
|---|---|
| Monthly fixed costs | $600 |
| Selling price per unit | $20 |
| Variable cost per unit | $14 |
| Contribution per unit | $6 |
| Break-even volume | 100 units per month |
Stress-test the margin before trusting the answer
If variable cost rises to $15 while the other inputs stay unchanged, contribution falls to $5 and break-even rises to 120 units. If the selling price instead falls to $18 with a $14 variable cost, contribution is $4 and the target becomes 150 units. This sensitivity check shows why small margin changes matter. It still says nothing about actual demand or your capacity to deliver.
Break-even profit is not the same as available cash
Customers may pay after you have paid suppliers, and equipment purchases can create cash needs before sales arrive. Build a separate calendar of expected receipts and payments. Keep your owner compensation, taxes, financing terms and one-off costs visible rather than assuming the simple example covers them. For an AI-related business, our local-versus-cloud cost worksheet helps identify usage and review costs that are easy to overlook.
- Use one currency and one time period.
- Include payment, delivery and refund costs where applicable.
- Round a fractional unit target up.
- Compare the target with realistic demand and delivery capacity.
- Model the timing of cash receipts separately.
Frequently asked questions
What is the basic break-even formula?
Fixed costs divided by selling price minus variable cost per unit, for a simple single-product model with positive contribution.
Does breaking even guarantee positive cash flow?
No. Payment timing and other cash movements can create a shortfall even when the model shows costs covered.
Are the example prices business recommendations?
No. They are invented inputs illustrating the calculation, not recommended prices or a revenue forecast.
Sources & further reading
Primary sources checked Oct 15, 2026. Vendor statements are attributed; editorial advice is our own.
- 1Break-even point calculator ↗US Small Business Administration
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