Break-Even Analysis Calculator

The break-even point in units is calculated by dividing your total fixed costs by the contribution margin per unit, where the contribution margin equals the selling price minus the variable cost per unit. For example, if your fixed costs are $50,000 per year, your selling price is $100 per unit, and your variable cost is $60 per unit, the contribution margin is $40 and your break-even point is 50,000 / 40 = 1,250 units. At this sales volume, your total revenue exactly equals your total costs (fixed plus variable), meaning your profit is zero. Any units sold above the break-even point generate profit; any below it result in a loss. This formula is a foundational tool in NZ business planning, budgeting, and pricing decisions. Source: General business finance principles.

The break-even revenue formula calculates the total sales dollars needed to cover all costs, and is especially useful when a business sells multiple products at different margins. The formula is: break-even revenue = fixed costs divided by gross margin percentage, where gross margin percentage equals (selling price minus variable cost) divided by selling price, expressed as a decimal. For example, if fixed costs are $80,000 and your gross margin is 40%, break-even revenue is $80,000 / 0.40 = $200,000. This means the business must generate $200,000 in revenue before it starts making a profit. For NZ businesses with mixed product lines, this revenue-based approach is more practical than tracking individual unit volumes. Source: General business finance principles.

In New Zealand, if your business is GST-registered, you should always perform break-even analysis using GST-exclusive prices and costs. GST (15%) is collected on behalf of IRD and is a pass-through — it is not your revenue and does not affect your profit or costs. Including GST in your selling price will overstate your revenue and distort the break-even calculation. For example, a GST-inclusive price of $115 is actually $100 of revenue plus $15 GST payable to IRD. Use the $100 GST-exclusive figure in your break-even formula. Similarly, variable costs such as materials may include GST that you reclaim as input tax credits, so use the GST-exclusive cost figure. If your turnover is under $60,000 per year you are not required to register for GST, in which case you price without GST. Source: IRD — GST (ird.govt.nz).

The contribution margin is the amount each unit sold contributes toward covering fixed costs and, once fixed costs are fully covered, toward generating profit. It is calculated as the selling price minus the variable cost per unit. For example, if you sell a product for $80 and the variable cost (materials, direct labour, packaging) is $50, your contribution margin is $30 per unit. The contribution margin ratio (CMR) expresses this as a percentage of the selling price: in this example CMR = $30 / $80 = 37.5%. A higher contribution margin ratio means your business reaches break-even faster and generates more profit per additional sale. Monitoring contribution margin by product line helps NZ businesses prioritise high-margin products and identify low-margin products that may be candidates for repricing or discontinuation. Source: General business finance principles.