Break even point calculator

Because they answer different questions. The first divides the fixed costs by what each unit leaves after paying for itself, and tells you where the accounts stop showing a loss.

The second takes out of that numerator whatever is a cost on paper but never leaves the bank, depreciation above all: it is the volume at which the account stops shrinking, and it usually arrives before the first. The third puts the profit you want next to the fixed costs, and tells you where the business pays what you meant to earn instead of merely surviving.

Because the margin is in the denominator, so the relation is a division and not a subtraction. With fifty thousand of fixed costs, going from a forty percent margin to thirty raises the revenue you need from 125,000 to 166,667: a quarter less margin, a third more sales.

It gets worse as the margin thins. At ten percent the same fixed costs demand half a million, at five percent a million. The discount that looks harmless on the spreadsheet is the one that breaks the arithmetic.

Then there is no break even point at all, and the tool says so instead of printing an enormous number that looks like a target. Every unit sold loses money, so selling more can never cover the fixed costs.

The only ways out are the price or the variable cost. Volume is not one of them, which is exactly what the formula is telling you when the denominator turns negative.

In units it depends on both; in revenue it depends only on the margin as a share of the price. That is why the table at the bottom needs no price: break even revenue is the fixed costs divided by that share.

It is a useful way to compare very different businesses. A shop selling few expensive things and one selling many cheap things sit on the same line if their margin share is the same.