Finance⏱ 4 min read
How to Calculate Break-Even Units and Break-Even Revenue
Break-even analysis tells you exactly how many units you need to sell before you start making a profit. Here is the formula, contribution margin, and how to apply it to services as well as products.
Every business decision benefits from a break-even calculation. Whether you are launching a product, pricing a service, or evaluating whether to hire another member of staff, the break-even framework gives a clear answer.
The Break-Even Formula
Break-even units = Fixed Costs / Contribution Margin per Unit
Contribution Margin per Unit = Selling Price - Variable Cost per Unit
Example: candle business
Selling price per candle: £18
Variable cost (wax, wick, jar, packaging, labour): £7 per candle
Contribution margin: £18 - £7 = £11 per candle
Fixed costs (monthly):
Rent for studio: £400
Insurance: £50
Website and subscriptions: £30
Marketing (fixed budget): £100
Total fixed: £580/month
Break-even units: £580 / £11 = 52.7 candles/month -- round up to 53
Break-Even Revenue
Break-even revenue = Fixed Costs / Contribution Margin Ratio
Contribution Margin Ratio = Contribution Margin / Selling Price
From candle example:
CM ratio = £11 / £18 = 0.611 = 61.1%
Break-even revenue = £580 / 0.611 = £949.26/month
Interpretation: you must generate £950/month in revenue
just to cover fixed costs. Every pound above that:
61.1p goes to profit, 38.9p goes to variable costs.
Safety Margin and Target Profit
Target profit break-even:
Units for target profit = (Fixed Costs + Target Profit) / CM per Unit
Candle business targeting £500/month profit:
Units needed = (£580 + £500) / £11 = 1,080 / £11 = 98.2 -- 99 candles/month
Margin of safety:
If currently selling 80 candles/month and break-even is 53:
Margin of safety = (80 - 53) / 80 = 33.75%
You could sell 33.75% fewer candles before making a loss.
This percentage helps assess business risk:
Below 15%: fragile -- small demand drop creates losses
15-30%: moderate safety
Above 30%: good cushion against revenue variation
Service Business Break-Even
For service businesses, replace "units" with billable hours:
Freelance web designer:
Hourly rate: £85
Variable cost per hour: £8 (tools, software, small expenses)
CM per hour: £77
Fixed monthly costs: £1,200 (home office, insurance, subscriptions, marketing)
Break-even hours: £1,200 / £77 = 15.6 hours/month
At 15.6 billable hours, costs are covered.
With a realistic 100 billable hours/month:
Monthly profit: (100 - 15.6) x £77 = £6,503
(This is why skilled freelancers can earn well with low overhead)