Fixed costs, variable costs and why the split matters
A monthly expense is fixed if it stays put when sales rise or fall: rent, the salaries of the office team, the broadband bill. It is variable if it tracks the volume: raw materials, piece-rate labour, packaging, shipping, electricity in a factory. Mark each row on the calculator with the right type, and the page uses that split to find the breakeven.
The split is not always clean. A salary paid on a small base plus a per-unit commission is part fixed, part variable. Split the row into two heads if the mix is material; keep it as one head for a first-cut view.
Contribution per unit is the number to watch
Contribution per unit is the unit price minus the variable cost per unit. On the sample inputs that is ₹1,000 minus ₹400, or ₹600 a unit. Every additional sale brings in ₹600 of cash after paying for the material that unit cost; that ₹600 is what has to cover the fixed costs for the month before anything is called profit.
Divide the fixed cost for the month by the contribution per unit, and the answer is how many units the business has to sell in the month to break even. On the sample: ₹2,00,000 divided by ₹600, which is 333.33 units. The 334th unit crosses the line.
Breakeven revenue, as a formula
Breakeven revenue is a rupee figure rather than a unit figure, and it is more useful when you do not have a clean unit of sale. The formula is: fixed cost divided by the contribution ratio, where the contribution ratio is contribution per unit divided by the unit price.
On the sample: contribution ratio is ₹600 divided by ₹1,000, which is 0.6. Breakeven revenue is ₹2,00,000 divided by 0.6, which is ₹3,33,333. At that top-line, the contribution ratio covers the fixed cost exactly. Every rupee of sales above that leaves 60 paise of operating profit; every rupee below leaves 40 paise of fixed cost uncovered.
Worked example you can check
Figures below match the sample loaded by default. Four rows of expense: Rent ₹50,000 (fixed), Salaries ₹1,50,000 (fixed), Raw materials ₹1,50,000 (variable), Electricity ₹30,000 (variable). Revenue ₹5,00,000 for the month. Unit price ₹1,000, variable cost per unit ₹400.
| Head | Type | Amount | Share |
|---|---|---|---|
| Rent | Fixed | ₹50,000 | 13.16 per cent |
| Salaries | Fixed | ₹1,50,000 | 39.47 per cent |
| Raw materials | Variable | ₹1,50,000 | 39.47 per cent |
| Electricity | Variable | ₹30,000 | 7.89 per cent |
| Total | ₹3,80,000 | 100 per cent |
Fixed sum ₹2,00,000; variable sum ₹1,80,000; profit on ₹5,00,000 revenue is ₹1,20,000. Contribution per unit ₹600; breakeven 334 units (rounded up from 333.33); breakeven revenue ₹3,33,333. The month is profitable because actual revenue is above the breakeven revenue.
What the contribution-ratio formula assumes
The breakeven formula on this page works from a single unit price and a single variable cost per unit. In practice a shop sells several items at different prices, each with its own variable cost. The honest way to carry the arithmetic to several products is to use a weighted-average contribution ratio: the sum of contributions across products divided by the sum of revenues, weighted by the actual mix.
The page keeps one product in view because a single bar chart is easier to read, and the first-cut breakeven is usually accurate enough to tell a business owner whether a new line clears its own fixed cost. Where the mix matters, split the business into two or three lines and run the calculator once per line; add the fixed costs that belong to each line in that run.
Guard rails this page builds in
Contribution per unit must be positive for a breakeven to exist. If the variable cost per unit is at or above the unit price, every sale adds more cost than revenue; the breakeven is not meaningful, and the page shows that plainly instead of printing a misleading number.
Fixed cost at zero gives a breakeven of zero, which is also plainly handled. A revenue of zero on the month gives a profit of minus the total expense, which is how a loss shows up in the arithmetic; the breakeven is unchanged by this month's revenue, because the breakeven is a property of price and cost structure, not of this month's turnover.
What this calculator leaves out
- Taxes on profit and GST on sales. The GST calculator covers GST on the invoice; the income tax calculator covers tax on the profit for a sole proprietor.
- Cash timing. Breakeven here is about profit, not cash in hand. A profitable month can still be a cash-short month if receivables are slow.
- Depreciation on owned assets. For a fuller operating picture use the EBITDA calculator.
- Debt service. Interest and principal on a loan sit below the operating line; they do not change the operating breakeven on this page.
Frequently asked questions
What is the difference between a fixed cost and a variable cost?
A fixed cost is one that stays the same from month to month regardless of volume: rent, office salaries, broadband. A variable cost tracks volume: raw materials, piece-rate labour, packaging, electricity in a factory. Many real-life costs have a fixed base plus a variable top; split them where the mix matters.
How is breakeven calculated on this page?
Breakeven units is fixed cost divided by contribution per unit (unit price minus variable cost per unit). Breakeven revenue is fixed cost divided by the contribution ratio (contribution per unit divided by the unit price). The formulas assume a single product at a single price.
What does contribution per unit mean?
Contribution per unit is the unit price minus the variable cost per unit. It is the cash the business keeps from each additional sale after paying for the material or labour that went into it. Fixed costs are covered out of total contribution; profit begins where contribution exceeds fixed cost.
What if contribution per unit is zero or negative?
Then the breakeven is not meaningful on these inputs, because every extra sale adds at least as much cost as revenue. The calculator flags this instead of printing a figure. The remedy is to raise the unit price or lower the variable cost per unit.
Does the calculator include GST, income tax or interest?
No. GST is a tax on the invoice and does not flow through this calculator; use the GST calculator. Income tax is on profit for the year, not on the month, and interest is a below-the-operating-line item. Treat this page as the operating view only.
Can I use this for a service business with no inventory?
Yes. Treat the variable cost per unit as the per-engagement cost (billed hours, travel, subcontractor fees) and the unit price as the engagement value. The arithmetic is identical; only the labels change.
How is this different from the EBITDA calculator?
The EBITDA calculator works top-down from revenue minus cost of goods minus operating expenses. This page works bottom-up from a list of expense rows, keeps the fixed-variable split explicit and adds a breakeven block. The EBITDA calculator is the comparable view on a published statement of profit and loss.
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