Break-even analysis template
Break-even analysis tells you how much you need to sell to cover all your costs, the point where you stop losing money and start making it. This free Excel calculator works out your break-even point in units and in sales, your margin of safety, and how many units you need to hit a profit target, and draws a chart of revenue against cost.
Running a company of 30 to 200 people? Documents like this are now worth money.
It's useful before a price change, a new hire, a new product or a move to bigger premises: anything that changes your fixed costs or your margin.
What's in the template
One calculator sheet with a chart. Enter four numbers in the yellow cells (fixed costs per month, selling price per unit, variable cost per unit and expected sales), plus a profit target if you have one. The example is a fictional company:
| Input | Example |
|---|---|
| Fixed costs per month | 48,000 |
| Selling price per unit | 120.00 |
| Variable cost per unit | 72.00 |
| Expected sales (units per month) | 1,250 |
| Target profit per month | 10,000 |
| Result | Example |
|---|---|
| Contribution per unit | 48.00 |
| Contribution margin | 40.0% |
| Break-even point | 1,000 units (120,000 of sales) |
| Margin of safety | 250 units (20.0%) |
| Units needed for the target profit | 1,209 |
| Profit at expected sales | 12,000 |
The chart plots revenue against total cost from zero to twice the break-even volume; break-even is where the two lines cross.
The formula
- Contribution per unit = selling price − variable cost per unit.
- Break-even units = fixed costs ÷ contribution per unit.
- Break-even sales = break-even units × price (or fixed costs ÷ contribution margin).
- Margin of safety = expected sales − break-even sales: how far sales can fall before you make a loss.
- Units for a target profit = (fixed costs + target profit) ÷ contribution per unit.
How to use it well
- Be honest about fixed costs. Include salaries that don't change with volume, rent, software, insurance and finance costs.
- Variable cost means cost per unit sold: materials, direct labour paid per job, delivery, payment fees.
- Use average figures if you sell many products, or run the calculator per product line.
- Try scenarios. Change one input at a time: a 5% price rise, a new salary, a cheaper supplier. Note how far the break-even point moves.
Example: what a price rise does
For the fictional company, the example breaks even at 1,000 units a month and expects to sell 1,250, a margin of safety of 20%. Raising the price from 120 to 126 (5%) lifts contribution from 48 to 54 per unit and brings break-even down to 889 units, if volumes hold. Taking on a 4,000-a- month salary without a price rise pushes break-even up to 1,084. The calculator lets you see these trade-offs before you commit.
Common mistakes
- Treating a salary as variable because the person works on sales.
- Using list price when customers actually pay a discounted price.
- One break-even for very different products with different margins.
- Forgetting the timing: breaking even on paper doesn't mean the cash arrives in time. Pair it with a cash flow forecast.
Frequently asked questions
What's a good margin of safety?
There's no single right number; it depends on how volatile your sales are. The point is to know it, and to watch it shrink or grow as costs and prices change.
Can a service business use break-even analysis?
Yes. Treat an hour, a day or a project as the unit, with the direct cost of delivering it as the variable cost.
What's the difference between contribution margin and gross margin?
Contribution margin takes off only costs that vary with each sale. Gross margin takes off cost of sales as defined in your accounts, which may include some fixed production costs.
Should the owners' pay be in fixed costs?
Yes. If the business has to pay the owners or directors to keep running, include that pay in fixed costs. Leaving it out gives a break-even point the business can't actually live on.