Break-even analysis

In short: The break-even analysis calculates the quantity from which a product makes a profit because revenue and costs are equal.

In more detail: Break-even quantity = fixed costs ÷ (price − variable costs per unit). The value in the denominator is the contribution margin per unit.

In Depth

Example: An online course causes €1,200 fixed costs (creation) and €5 variable costs per sale (payment fee). It costs €29. Contribution margin = 29 − 5 = €24. Break-even quantity = 1,200 ÷ 24 = 50 sales.

• Profit threshold: From the 51st sale a profit arises.
• Profit at x units: contribution margin × quantity − fixed costs.
• Chart: intersection of the cost and revenue lines.
• Changing the price: A higher price lowers the break-even quantity but usually also demand.
• Limits: assumption of linear costs, one product, constant prices.

See also: Contribution margin and costing, Payback calculation and TCO