Breakeven price: formula and worked example

Breakeven price is variable cost per unit plus fixed costs divided by the number of units you expect to sell. It answers a pricing question at a stated volume: what net price covers the included costs without leaving a profit or loss?

Start with the price formula

Breakeven price per unit = Variable cost per unit + Fixed costs / Units sold

Proof: Price × Units sold − Variable cost per unit × Units sold − Fixed costs = 0

This rearranges the relationship behind the SBA's break-even formula: sales must cover fixed and variable costs. Use costs and units for the same period, and define which costs the result covers.

The denominator is units sold, rather than units produced or warehouse capacity. Unsold production does not generate the revenue needed to cover the period's costs. If you already know the selling price and need a required sales volume, use the separate break-even analysis method.

For this example, the scope is monthly operating break-even for one product line. Interest, income taxes, and recovery of the original investment are outside the calculation. A business can meet this operating price and still need additional cash for financing or expansion.

Take the inputs from revenue and cost exports

An illustrative US distributor sells maintenance kits. Its September export contains one product line, with all amounts in USD. Fixed costs belong entirely to this line; no shared costs need allocating.

Retain transaction date, product, quantity, net revenue, cost account, and department on the underlying rows. Match cost entries to the same sold units and month. An invoice register supplies realized selling prices; a purchasing export alone will not establish the cost of units sold when inventory changes.

Classify costs by their behavior over the relevant volume range. Assembly is variable in this example because it is purchased per kit. A salaried assembly team might instead create a fixed cost or a capacity step. Preserve that distinction before comparing scenarios.

Work each step and prove the result

The following calculations use the export inputs above. No rounding is required for this base case.

The current realized price is $69,000 / 3,000 = $23.00. Current operating profit is $69,000 − $36,000 − $30,000 = $3,000. That surplus is also the $1.00 difference between realized and breakeven price multiplied by 3,000 units.

Check both identities. First, revenue at the required price equals total included cost. Second, contribution at that price is ($22.00 − $12.00) × 3,000 = $30,000, exactly covering fixed costs. Tie the source totals back to the revenue ledger and the mapped expense accounts before accepting either result.

Compare prices at different volumes

Keep variable cost at $12.00 per kit and monthly fixed costs at $30,000. Change only sold volume.

The required price falls as fixed costs spread across more units. Each row reconciles: units multiplied by breakeven price equals total costs. These are conditional results; the table does not establish that customers will buy the assumed volume at the corresponding price.

Check capacity separately. If the higher volume requires another shift or warehouse space, revise fixed costs before quoting the lower price. Finance should own the cost scope, while sales owns the evidence for achievable volume. Compare realized prices with approved prices using price realization by customer.

Account for fees charged as a percentage of sales

A percentage selling fee changes with price. Adding its current dollar amount to variable cost will understate the fee when the selling price rises.

Breakeven price with a percentage fee = (Variable unit cost excluding fee + Fixed costs / Units) / (1 − Fee rate)

In Excel, put units in B2, variable unit cost excluding the fee in B3, fixed costs in B4, and fee rate in B5:

=IF(OR(B2<=0,B5<0,B5>=1),"Check inputs",ROUNDUP((B3+B4/B2)/(1-B5),2))

Microsoft documents that ROUNDUP rounds away from zero. For a positive required price, rounding upward avoids a small shortfall. Covirage is not affiliated with Microsoft.

Where it goes wrong

• An optimistic volume denominator. Dividing fixed costs by capacity rather than supported sales makes the required price look easier to achieve.
• Double-counted fixed overhead. A standard unit cost may already contain absorbed overhead. Separate that allocation before adding the same fixed expense pool again.
• Gross prices compared with net costs. Discounts, rebates, and returns reduce retained revenue. Compare the result with net realized price on a consistent unit basis.
• A price calculation treated as a recovery date. Covering this month's costs does not recover startup spending. Break-even time separates operating results from cumulative cash payback.

Compare required prices on your own file in Covirage

Bring a product sales export and the corresponding cost workbook, with planned volumes and cost assumptions identified. Covirage maps the columns, its tools compute and check the figures, and the external AI model explains the results with every figure traced to its rows. Create a free Covirage account, which takes about a minute, then set up your business and bring a sample of your own data.

See customer profitability analysis for the related business use.