Key facts
- Break-even is where total revenue equals total cost and profit is zero
- Contribution per unit is selling price minus variable cost per unit
- With £20,000 fixed costs and £20 contribution, break-even is 1,000 units or £50,000
- Margin of safety is how far expected sales can fall before you reach break-even
Break-even feeds into pricing and profit planning alongside profit margin benchmarks guide and the tax in corporation tax rates guide.
| Selling price | Contribution per unit | Break-even units | Break-even revenue |
|---|---|---|---|
| £40 | £10 | 2,000 | £80,000 |
| £50 | £20 | 1,000 | £50,000 |
| £60 | £30 | 667 | £40,000 |
| £80 | £50 | 400 | £32,000 |
Break-even units = fixed costs divided by contribution per unit, rounded up. Source: WhatsUK calculation, June 2026.
Take a business with £20,000 of fixed costs a year, selling a product at £50 with £30 of variable cost per unit. The contribution per unit is £50 minus £30, which is £20. Dividing £20,000 by £20 gives a break-even point of 1,000 units, or £50,000 in sales. If the business expects to sell 1,300 units, its margin of safety is 300 units, or £15,000, the cushion before it slips into a loss.
Fixed costs: costs that do not change with output, such as rent and salaries.
Variable costs: costs that rise with each unit made or sold, such as materials.
Contribution per unit: selling price minus variable cost, the amount each sale adds towards fixed costs and profit.
Margin of safety: how far sales can fall from the expected level before reaching break-even.
Model your own numbers with the tools on the calculators directory page.
The break-even formula
Break-even point (in units)
Fixed costs divided by (Selling price per unit minus Variable cost per unit)
The second part of this formula, Selling price minus Variable cost, is called the contribution per unit. It represents how much each sale contributes toward covering fixed costs before generating profit.
Break-even point in revenue (£)
Break-even units multiplied by selling price per unit
Break-Even Calculator
Calculate your break-even point instantly with your own revenue and cost figures.
Fixed costs vs variable costs: the key distinction
| Cost type | Definition | Examples |
|---|---|---|
| Fixed costs | Do not change with sales volume | Rent, salaries, insurance, loan repayments, equipment lease |
| Variable costs | Change directly with sales volume | Materials, packaging, direct labour per unit, payment processing fees |
| Semi-fixed (step costs) | Fixed within a range, then jump | A second staff member hired when sales double |
For the break-even calculation, you must correctly classify each cost. Misclassifying a fixed cost as variable (or vice versa) produces a misleading break-even figure.
Worked example 1: coffee shop
Monthly fixed costs:
- Rent: £2,500
- Staff wages (owner + one part-time): £3,200
- Insurance: £150
- Equipment lease: £350
- Utilities: £400
- Total fixed costs: £6,600 per month
Selling price per cup: £3.50
Variable cost per cup (milk, coffee, cup, lid, sugar): £0.75
Contribution margin per unit: £3.50 minus £0.75 = £2.75
Break-even point = £6,600 divided by £2.75 = 2,400 cups per month
2,400 cups divided by 26 trading days = 92 cups per day
Is 92 cups per day realistic for the chosen location? That is the business viability question this analysis enables the owner to answer before signing a lease.
Worked example 2: freelance web developer
Monthly fixed costs:
- Software subscriptions: £250
- Accountancy: £100 (monthly equivalent of annual fee)
- Home office costs: £200
- Professional insurance: £75
- Total fixed costs: £625 per month
Day rate: £450
Variable cost per project day: £30
Contribution margin per day: £420
Break-even point = £625 divided by £420 = 1.49 billable days per month
For a freelancer billing at £450/day, covering costs requires less than two billable days per month. This demonstrates how professional service businesses with low variable costs are highly leveraged: almost all revenue above the first two days of billing converts to profit.
Worked example 3: product-based business (handmade candles)
Monthly fixed costs:
- Market pitch fees and website: £300
- Equipment depreciation: £50
- Marketing: £150
- Total: £500 per month
Selling price per candle: £16
Variable costs per candle (wax, fragrance, wick, jar, label, packaging): £4.50
Contribution margin: £11.50 per candle
Break-even point = £500 divided by £11.50 = 44 candles per month
Selling 44 candles per month at £16 each generates £704 in revenue to cover £500 fixed costs plus £198 in variable costs (44 x £4.50). Profit begins with candle 45.
Break-even as a pricing tool
Break-even analysis works in reverse as a pricing check. If you are considering a discount:
Current price: £16, break-even at 44 units
Discounted price: £13, variable costs unchanged at £4.50
New contribution margin: £8.50
New break-even: £500 divided by £8.50 = 59 units
A 19% price reduction (£3 off £16) increases your required break-even volume by 34% (from 44 to 59 units). Discounting destroys margins rapidly because the contribution margin is highly sensitive to price changes.
Expert Tip
Before offering any discount, calculate what volume increase is needed to maintain the same total contribution. In most cases, the required volume increase is larger than the demand increase the discount actually generates. This is why most accountants are conservative about discount strategies for product businesses.Margin of safety
Once you know your break-even point, you can calculate the margin of safety: how much your actual revenue can fall before you begin making a loss.
Margin of safety formula
(Actual revenue minus Break-even revenue) divided by Actual revenue x 100
For the coffee shop selling 120 cups per day versus a break-even of 92 cups:
Actual monthly revenue: 120 x £3.50 x 26 = £10,920
Break-even revenue: 92 x £3.50 x 26 = £8,372
Margin of safety: (£10,920 minus £8,372) divided by £10,920 x 100 = 23.3%
A 23.3% margin of safety means the business can tolerate a 23.3% revenue decline before falling into loss. For a business facing seasonal variation, competitor pressure, or economic uncertainty, this figure needs to be tracked monthly.
Break-even and corporation tax
Break-even analysis typically calculates pre-tax profit. If your business is a limited company, corporation tax applies to profits above zero. The post-tax break-even point is higher: you need more revenue to achieve a given amount of after-tax profit.
Corporation Tax Calculator
Factor in corporation tax when planning target revenue levels.
Related Calculators
Frequently Asked Questions
Divide your fixed costs by the contribution per unit, which is the selling price minus the variable cost per unit. With £20,000 of fixed costs and a £20 contribution on a £50 product, you break even at 1,000 units. Multiply by the price to get the break-even sales figure, here £50,000.
Break-even units equal fixed costs divided by contribution per unit, and break-even revenue equals those units times the selling price. Contribution per unit is selling price minus variable cost per unit. These three formulas together tell you how many sales, and how much revenue, you need just to cover all your costs.
It is the selling price of one unit minus the variable cost of making or selling that unit. On a £50 product with £30 of variable cost, the contribution is £20. Each sale puts that £20 towards your fixed costs, and once those are covered, every further £20 is profit.
It is the gap between your expected sales and your break-even sales, showing how far sales can fall before you make a loss. If you expect 1,300 units and break even at 1,000, your margin of safety is 300 units, or £15,000 of sales. A larger margin means a more resilient business.
A higher price raises the contribution per unit, so you need fewer sales to break even. With £20,000 of fixed costs and £30 variable cost, charging £50 needs 1,000 units, but £60 needs only 667 and £80 just 400. Cutting the price has the opposite effect and raises the break-even point.
Fixed costs stay the same regardless of how much you produce, such as rent, insurance and salaries. Variable costs rise with each unit, such as materials and packaging. Break-even analysis separates the two because only variable costs are deducted to find the contribution that covers your fixed costs.
It shows the minimum sales needed to avoid a loss, which helps with pricing, setting targets and deciding whether a product or business is viable. It also reveals how sensitive profit is to price and cost changes, so you can test scenarios before committing money or launching.
Increase the contribution per unit or cut fixed costs. You can raise prices, reduce the variable cost of each unit through cheaper supplies or efficiency, or trim fixed overheads such as rent and subscriptions. Each of these means fewer sales are needed before the business starts making a profit.
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James Hartley is a Chartered Management Accountant (CIMA) with more than eight years of experience in UK tax, payroll and compliance. He holds a BSc in Finance and Economics from the University of Manchester and spent his early career at a Big 4 accounting firm. He founded WhatsUK to build free UK financial calculators and guides verified against official HMRC sources. He authors every calculator and article on WhatsUK.
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Disclaimer: This calculator provides estimates based on standard HMRC rates for 2026/27. Results may vary based on individual circumstances. This is not financial advice. Always consult a qualified accountant or CIMA-qualified financial adviser for personal tax matters.