# Break-Even Analysis

> Break-even is the sales level at which revenue exactly covers fixed and variable costs. Divide monthly fixed costs by contribution per unit (price minus variable cost) to get break-even units, or by the contribution margin ratio to get break-even revenue. Anything sold above it contributes to profit.

Interactive calculator: https://www.industax.com/calculators/break-even

- **Break-even units:** Fixed costs ÷ contribution per unit
- **Break-even revenue:** Fixed costs ÷ contribution ratio
- **Use it for:** Pricing and hiring decisions

## Formulas

| Measure | Formula |
| --- | --- |
| Contribution per unit | Selling price − variable cost per unit |
| Contribution margin ratio | Contribution ÷ selling price |
| Break-even units | Fixed costs ÷ contribution per unit |
| Break-even revenue | Fixed costs ÷ contribution margin ratio |
| Units for target profit | (Fixed costs + target profit) ÷ contribution per unit |
| Margin of safety | (Actual sales − break-even sales) ÷ actual sales |

## Getting the inputs right

- Fixed: rent, salaries, software subscriptions, loan EMIs, insurance
- Variable: raw material, packaging, shipping, payment gateway and marketplace fees, commissions
- Use prices net of GST — GST collected isn't revenue
- Rerun it whenever prices, costs or the team change

## Worked example: D2C product brand

1. Fixed costs ₹6,00,000 a month; selling price ₹1,000 (excluding GST); variable cost ₹600.
2. Contribution = ₹400 per unit; ratio = 40%.
3. Break-even = ₹6,00,000 ÷ ₹400 = 1,500 units, or ₹15 lakh revenue a month.

**Result:** Selling 2,000 units gives ₹2 lakh profit and a 25% margin of safety.

## FAQs

### How can I lower my break-even point?

Raise prices, cut variable costs per unit (sourcing, shipping, fees) or reduce fixed costs. A small price increase often moves break-even more than cost cuts.

### Should depreciation be a fixed cost?

Yes, for accounting break-even. For cash break-even, use cash fixed costs including loan repayments instead of depreciation.

### Does break-even work for service businesses?

Yes — use billable hours or projects as units and direct delivery costs (contractor fees, tools) as variable costs.

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Canonical page: https://www.industax.com/calculators/break-even
Publisher: Indus Tax — CA-led tax and compliance firm (https://www.industax.com). Contact: info@industax.com, 9059139258.
This is general information, not advice for your specific facts.