How to Calculate Break-Even Before You Launch
Guide · 2026-10-17
Most product decisions are made on gut feel and a supplier quote. One division would settle it.
The formula
break-even units = fixed costs / (price - variable cost per unit)
The denominator is your contribution margin. If it is negative, no volume will save the product, and the correct decision is not to launch it.
A worked example
Fixed costs per month: $2,000 (subscriptions, software, storage, your own time at a notional rate).
Price: $35. Variable cost: $14 (product $9, packaging $1, payment fees $4).
Contribution margin: $21.
Break-even: 2,000 / 21 = 95.2, so 96 units per month.
Revenue at break-even: $3,360.
Now the useful question: can this product realistically sell 96 units a month? If the answer is no, the price is too low, the variable cost is too high, or the fixed cost base is too heavy for the product.
Three levers, in order of impact
- Price. A $5 increase on a $21 contribution margin cuts break-even from 96 to 77 units. Price is almost always the fastest lever.
- Variable cost. Cutting $2 of packaging moves break-even to 89 units. Useful, but rarely dramatic.
- Fixed cost. Halving subscriptions from $2,000 to $1,000 halves break-even to 48 units. Effective, but often means giving up tools you need.
What people get wrong
They leave payment fees out of variable cost, which understates break-even by 3-5%. They treat their own salary as free, which makes a losing business look viable. And they use gross margin instead of contribution margin, which ignores the fees entirely.
Break-even is a floor, not a target
Covering fixed costs means you earned nothing. The real target is break-even plus the profit you actually want. If you need $1,500 of profit on top, the unit target becomes (2,000 + 1,500) / 21 = 167 units.