Break-even & Pricing Calculator
How many units must you sell to cover your costs? What price gives you the margin you want? And how much more must you sell to make up for a discount? Three quick answers, in plain English.
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Key ideas explained
Fixed costs are the bills you pay whether you sell one unit or a thousand (rent, salaries, subscriptions). Variable costs grow with every sale (materials, delivery, payment fees). What is left of each sale after its variable costs is the contribution: it is what pays down the fixed costs, and once they are covered, it is profit.
Break-even is the number of units at which the contributions add up to the fixed costs: no profit, no loss. The margin of safety is how far sales can fall below your current level before you reach that point.
Margin is your profit as a share of the selling price; markup is your profit as a share of your cost. They are easily confused: adding 20% to your cost gives a 16.7% margin, not 20%. To end up with a 20% margin you need a 25% markup.
Worked example
A shop has 10,000 of fixed costs a month and sells a product for 50 that costs 30 to deliver. Each sale leaves 20, so it breaks even at 10,000 ÷ 20 = 500 units. Selling 800 units earns 800 × 20 − 10,000 = 6,000, and sales could fall 37.5% before the shop loses money. Now it considers a 10% discount (price 50 → 45): each sale leaves only 15 instead of 20, so it must sell 33% more (about 1,067 units instead of 800) just to keep the same profit.
Before you trust the result: are all the costs in the right bucket? Do fixed costs, target and units all cover the same period? Is your variable cost really per unit? Do you have a realistic reason to expect the extra sales a discount needs?
Methodology
Assumptions and limits: price and variable cost per unit are constant, everything you produce is sold, and fixed costs stay fixed however many units you sell (in practice they step up as you grow). The discount calculation assumes your cost per unit does not change and that the discount applies to every sale, including customers who would have paid full price. Taxes, financing costs, returns and the time value of money are not modelled. The safety and discount signals (30% and 10% cushion, 50% extra sales) are rules of thumb, not guarantees.
Frequently asked questions
How do you calculate the break-even point?
Divide your fixed costs by what each unit contributes: the selling price minus the variable cost per unit. With 10,000 of fixed costs, a price of 50 and a variable cost of 30, each unit leaves 20, so you break even at 500 units.
What is the difference between margin and markup?
Margin is profit as a share of the selling price; markup is profit as a share of the cost. Selling something that costs 80 for 100 gives a 20% margin but a 25% markup. A 50% margin needs a 100% markup.
What are fixed and variable costs?
Fixed costs do not change with the number of units you sell in the period, such as rent, salaries and software subscriptions. Variable costs grow with every sale, such as materials, delivery, payment fees and sales commission.
How much more do I need to sell after giving a discount?
To earn the same total profit you need to sell discount divided by (margin minus discount) more units. At a 40% margin, a 10% discount needs 33% more sales and a 20% discount needs 100% more.
What is the margin of safety?
The margin of safety is how far your sales can fall below the current level before you stop making a profit. It equals actual units minus break-even units, divided by actual units.