What are fixed vs variable costs?

Fixed costs stay the same regardless of how many units you produce or sell — rent, salaries, insurance, equipment leases. Variable costs change with production volume — raw materials, direct labor per unit, packaging, shipping. Mixed costs have both fixed and variable components.

What is margin of safety?

Margin of safety = (Actual Sales − Break-Even Sales) ÷ Actual Sales × 100. It tells you how far sales can drop before you hit a loss. A 30% margin of safety means sales can decline 30% before the business breaks even.

Cost of Goods Sold (COGS) = Beginning Inventory + Purchases (or Production Costs) − Ending Inventory. COGS is the direct cost of producing goods sold during a period. It appears on the income statement and is subtracted from revenue to calculate gross profit.

Quick Answer

Break-even (units) = Fixed Costs ÷ (Unit Price − Variable Cost per Unit). A product with $20,000 fixed costs, $50 price, and $20 variable cost breaks even at 667 units ($33,333 revenue). Contribution margin = Price − Variable Cost = $30/unit. Revenue break-even = Fixed Costs ÷ Contribution Margin %.

Break-Even Calculator

Find your break-even point in units and revenue.
Includes COGS calculator, contribution margin, and margin of safety.

Break-even analysis · COGS calculator · Margin of safety · 2026

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Break-Even Analysis

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Total Fixed Costs (per month/year)

Rent, salaries, insurance, subscriptions

Variable Cost per Unit

Materials, direct labor, packaging per unit sold

Selling Price per Unit

Expected / Actual Sales Units (optional) Enter your projected sales to calculate margin of safety

Break-Even Analysis: The Formula Every Business Owner Needs

The break-even point is where total revenue equals total costs — no profit, no loss. Below it you're losing money; above it you're profitable. Every pricing decision, cost-cutting move, and sales target should be evaluated against your break-even point.

The break-even formula

Break-Even Units = Fixed Costs ÷ Contribution Margin per Unit

Contribution margin = Selling Price − Variable Cost. If your product sells for $50 and variable cost is $25, your CM is $25. If fixed costs are $10,000/month, you need 400 units/month to break even.

What is COGS and why does it matter?

COGS (Cost of Goods Sold) is a fundamental accounting figure: Beginning Inventory + Purchases − Ending Inventory. Gross Profit = Revenue − COGS. Your gross margin percentage determines how much you have left to cover operating expenses and generate net profit.

FAQ

Break-even & COGS questions

What is the break-even point formula?

Break-Even Units = Fixed Costs ÷ (Price per Unit − Variable Cost per Unit). The denominator is called contribution margin. Break-Even Revenue = Fixed Costs ÷ CM Ratio, where CM Ratio = Contribution Margin ÷ Price.

What is contribution margin?

Contribution margin = Selling Price − Variable Cost. Each unit sold contributes this amount toward covering fixed costs. Once fixed costs are covered, each additional unit sold is pure profit (at the contribution margin level).

What counts as a fixed vs variable cost?

Fixed: rent, salaries, insurance, loan payments, software subscriptions — they don't change with production volume. Variable: raw materials, direct labor per unit, packaging, shipping per order. Some costs are "mixed" — like utilities with a fixed base charge plus usage component.

What is COGS?

COGS = Beginning Inventory + Purchases (or manufacturing costs) − Ending Inventory. It represents the direct costs of goods sold during a period. Revenue − COGS = Gross Profit. COGS goes on the income statement and is an income tax deduction for businesses.

What is a good margin of safety?

Margin of safety = (Actual Sales − Break-Even Sales) ÷ Actual Sales. A margin above 25% is generally considered healthy. Below 10% means you're dangerously close to a loss if sales dip slightly. Most stable, profitable businesses target 20–40%.

Break-Even Calculator

Break-Even Analysis: The Formula Every Business Owner Needs

The break-even formula

What is COGS and why does it matter?

Break-even & COGS questions

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