Glossary

Break-even analysis

Calculating the sales volume or revenue at which total costs are exactly covered, with neither profit nor loss.

Break-even analysis finds the point at which total revenue equals total costs. In its simplest per-unit form, break-even volume is Fixed costs / Contribution margin per unit: the number of units needed so that the contribution margin each one generates, revenue minus variable cost, adds up to cover all the fixed costs that do not vary with volume. Below that volume the business runs at a loss; above it, each additional unit adds to profit.

Break-even analysis differs from unit economics more broadly in scope: unit economics asks whether a single unit is profitable on its own terms, while break-even analysis asks how many of those units are needed to cover the fixed cost base as a whole. It also differs from gross margin, which describes a percentage relationship at any volume, not a specific volume threshold.

Break-even analysis matters for pricing decisions, new product launches, and evaluating whether a fixed investment, like new headcount or equipment, is justified, making it a common building block of cost-benefit analysis. A common pitfall is holding fixed and variable cost classifications constant across a wide range of volumes; many costs assumed to be fixed actually step up once volume crosses a certain threshold, such as needing a second facility, which the simple break-even formula does not capture.

Last reviewed September 22, 2026

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Related terms

Contribution margin Revenue minus all variable costs, showing how much each sale contributes toward covering fixed costs and profit. Unit economics The direct revenue and costs attributable to a single unit, such as one customer or one transaction. Gross margin The share of revenue left after subtracting the direct cost of producing or delivering what was sold. Cost-benefit analysis (CBA) Comparing a policy or project's monetized benefits against its costs to judge whether it is worth doing.