The formula
contribution per unit = price − variable cost break-even units = fixed costs / contribution break-even revenue = break-even units × price
Contribution is the part of each sale that is left to pay the rent. Once enough units have contributed to cover the fixed costs entirely, everything after that is profit — which is why the last sales of a good month are worth so much more than the first ones.
The unit figure is rounded up. You cannot sell 434.78 items, and at 434 you are still short.
Worked example
Fixed costs of 8,000 a month, a product selling at 49.90 with a variable cost of 31.50:
- contribution = 49.90 − 31.50 = 18.40 per unit
- break-even = 8,000 / 18.40 = 435 units
- break-even revenue = 21,695.65
- contribution ratio = 18.40 / 49.90 = 36.9%
To clear 5,000 of profit on top, you need (8,000 + 5,000) / 18.40 = 707 units. Note that it takes 272 extra sales to earn 5,000 — the profit does not scale with the same effort as the first 435.
Fixed or variable? This is where it goes wrong
The maths is trivial. Sorting the costs is not.
Variable costs happen once per sale and disappear if the sale does not: the goods themselves, packaging, fulfilment, payment fees, marketplace commission, the shipping label.
Fixed costs continue whether you sell one unit or a thousand: rent, salaries, software subscriptions, accounting, the marketplace’s monthly plan.
Two categories cause most of the trouble. Advertising is usually treated as fixed because you set a budget, but if you scale spend with sales it behaves like a variable cost — put it wherever it actually sits in your business. Storage is fixed for a warehouse you rent and variable for fulfilment charged per unit stored.
Margin of safety
If you enter what you actually sell, the calculator shows how far sales can fall before you reach break-even. Selling 600 units against a break-even of 435 gives a margin of safety of 27.5%.
That single number is a better measure of how exposed a business is than the profit figure. Two companies earning the same profit can sit at 5% and 40% margin of safety, and only one of them survives a bad quarter.
What the model assumes
Break-even analysis assumes the price and the variable cost stay constant across every unit. In practice neither does: volume discounts lower your cost as you grow, while promotions and marketplace fee tiers move the price.
Treat the result as a threshold to plan against, not a law. If your costs step down at a certain quantity, run the calculation twice — once on each side of the step — and see whether the answer changes your decision.
Frequently asked questions
Without. VAT is collected on behalf of the tax authority and never contributes to covering your costs. Use net prices and net variable costs throughout.
Because the variable cost equals or exceeds the price. Every additional unit then increases the loss rather than reducing it, so no volume will ever cover the fixed costs. Volume cannot fix a negative contribution — only a higher price or a lower unit cost can.
It depends entirely on the fixed costs it has to cover. A 15% ratio is comfortable for a business with almost no overheads and fatal for one carrying a warehouse and a team. The ratio only means something next to your fixed cost base.
Either run the calculation per product, treating the fixed costs each one is meant to carry, or use an average contribution weighted by your actual sales mix. The weighted average is only reliable while the mix stays roughly stable.
Whichever you plan in — usually a month. The result then reads as units per month. Just keep the period consistent: annual fixed costs against a monthly sales target is the most common mistake here.