Chartered Financial Analyst specializing in managerial accounting and contribution margin analysis for service businesses.
Use this calculator to find your breakeven point based on your contribution margin. Enter any three variables—Fixed Costs, Sale Price, Variable Cost, or Unit Volume—to find the missing value and understand your profitability.
Contribution Margin Breakeven Calculator
Contribution Margin Breakeven Formula
The breakeven formula uses the unit contribution margin (P – V) to determine the sales volume needed to cover fixed costs.
Q = F / (P – V)
Solve for Fixed Costs (F):
F = Q * (P – V)
Solve for Sale Price (P):
P = (F / Q) + V
Solve for Variable Cost (V):
V = P – (F / Q)
Variables Explained
- Fixed Costs (F): Total costs that do not change with sales volume (e.g., rent, software subscriptions, salaries).
- Sale Price per Unit (P): The revenue you receive for one unit of your product or service.
- Variable Cost per Unit (V): The costs directly tied to producing one unit (e.g., raw materials, payment processing fees).
- Breakeven Units (Q): The number of units you must sell for your total contribution margin to equal your fixed costs.
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What is Contribution Margin Breakeven?
The **Contribution Margin Breakeven** point is the level of sales at which a company’s total revenue covers all its fixed and variable costs, resulting in $0 profit. It’s calculated using the “contribution margin,” which is one of the most important concepts in managerial accounting.
The **Contribution Margin** itself is the revenue left over from a single sale after the variable costs have been paid. It is calculated simply as: `Sale Price (P) – Variable Cost (V)`. This “contribution” is the portion of revenue that can be used to pay down fixed costs.
Therefore, the “breakeven point” is achieved when you have sold enough units for the *total contribution margin* to equal your *total fixed costs*. For example, if your fixed costs are $1,000 and your contribution margin per unit is $10, you must sell 100 units ($1,000 / $10) to break even. This calculator helps you explore that relationship by solving for any of the four variables.
How to Calculate Breakeven (Example)
Let’s calculate the breakeven point for a local coffee shop.
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Identify Fixed Costs (F):
The shop’s total monthly fixed costs (rent, insurance, employee salaries) are $10,000.
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Identify Sale Price (P):
The average price of a coffee sold is $5.00.
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Identify Variable Cost (V):
The variable cost for each coffee (cup, beans, milk) is $1.00.
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Apply the Formula: Q = F / (P – V)
First, calculate the contribution margin: $5.00 (P) – $1.00 (V) = $4.00.
Next, divide the fixed costs by this margin:
Q = $10,000 / $4.00 = 2,500 -
Conclusion:
The coffee shop must sell 2,500 cups of coffee each month to cover all its costs. The 2,501st cup sold will be its first unit of profit.
Frequently Asked Questions (FAQ)
It’s the profit from a single sale *before* considering fixed costs. It’s calculated as `Sale Price – Variable Cost`. In the coffee example, the contribution margin is $4.00. This $4.00 is the amount that “contributes” to paying the $10,000 rent.
No, it is the same calculation. This calculator simply emphasizes the *concept* of the contribution margin, which is the engine of the breakeven formula. All breakeven calculations (F / (P-V)) are inherently “contribution margin breakeven” calculations.
The CM Ratio is the contribution margin as a percentage of the sale price: `(P – V) / P`. In our coffee example, it’s ($4 / $5) = 0.80, or 80%. This means 80 cents of every dollar in sales is available to pay for fixed costs and profit.
This means your contribution margin is negative, and you lose money on every single sale. It is impossible to break even in this scenario. This calculator will return an error, as your `(P – V)` denominator would be zero or negative.