Break-even and ROI calculator
Answer two questions: how many units must I sell to stop losing money, and when does this investment pay for itself? Enter the fixed cost, unit price and variable cost; for an investment add the yearly cash flows and the discount rate.
The calculation runs in your browser; the values you enter are not sent anywhere.
Break-even point
Costs independent of sales volume: rent, salaries, depreciation. The period must match your sales plan (e.g. yearly).
The price at which one product (or service) is sold to the customer.
The cost that rises with one more unit: raw material, direct labour, commission, packaging.
Used to calculate the margin of safety and planned profit. Enter it for the same period.
Calculates the volume needed to earn this profit; empty counts as 0.
Investment appraisal
The total spend made today (t = 0), as a positive number.
The yearly rate reflecting the time value of money and risk (e.g. the alternative return or the cost of capital).
The net cash inflow at the end of year 1, 2, 3 …; one value per line (or separate them with ;). Enter a negative value for a loss-making year.
Let us back your investment or pricing decision with your data and test it with scenarios together.
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How to use
A
Choose the currency; enter the fixed cost, unit price and variable cost per unit (and, if you like, the planned sales volume and target profit).
B
For an investment enter the initial investment, the discount rate and the yearly net cash flows.
C
Read the break-even units and revenue, margin of safety, payback period, ROI, NPV, IRR and the sensitivity table; copy the result.
02
Break-even point and contribution margin
The contribution margin is what is left of a product's price after its variable cost; it goes towards covering the fixed costs and then profit. Break-even units are the total fixed costs divided by the contribution margin: beyond that volume every sale leaves a profit. Break-even revenue is the same volume multiplied by the price (or fixed cost / contribution ratio).
If a target profit is added the required volume is (fixed cost + target profit) / contribution margin. If the contribution margin is zero or negative (the price does not cover the variable cost) there is no break-even: however much you sell you cannot cover the fixed cost.
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Margin of safety and sensitivity
The margin of safety shows how far planned sales are above the break-even point: (plan − break-even) / plan. A 30% margin means sales can fall by 30% of plan and you still do not make a loss. The smaller the margin, the more fragile the business is to fluctuations.
The sensitivity table gives the break-even volume in nine scenarios in which price and variable cost move by ±10%. Because price affects the contribution margin directly it is usually a stronger lever than cost; the table shows which variable deserves your attention.
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NPV, IRR, ROI and payback period
NPV (net present value) discounts future cash flows to today at the discount rate and subtracts the initial investment; if positive the investment creates value at that rate. IRR is the rate that makes NPV zero; it reads as the investment's own rate of return and the investment is attractive if it exceeds the discount rate. If the cash flow changes sign more than once there can be several IRRs.
ROI shows how much larger the total return is than the investment ((total inflow − investment) / investment) and ignores timing. The payback period is the time the cumulative cash inflow takes to recover the investment; the discounted version also includes the time value of money. Payback ignores the return after payback, so it should be read together with NPV.
FAQ
- How should I separate fixed and variable costs?
- Items that rise as sales volume rises are variable (raw material, commission, packaging); those independent of volume are fixed (rent, management salaries, depreciation). Some items are mixed; the most realistic approach is to see how they behave over the relevant range. The period you choose for the fixed cost (monthly, yearly) must match the sales plan.
- I have several products; how should I use it?
- Enter the average price and average variable cost weighted by the sales mix; the result is in "mixed units". If the mix changes, so does the break-even. For product-level analysis you must decide separately how products share the fixed cost.
- What discount rate should I choose?
- The return you could get from an alternative investment, or your company's cost of capital (the weighted average of the cost of debt and equity), is suitable. Riskier investments use a higher rate. Try the result with a few rates; the rate at which NPV changes sign is the IRR.
- If NPV is positive, should I invest?
- Only if the cash flow forecasts are right. A positive NPV means value creation at the chosen discount rate; but forecast errors, tax, inflation, working capital and strategic effects can change the outcome. For a decision compare the NPV across scenarios (pessimistic, expected, optimistic).
- Why is no IRR found, or why are there several?
- An IRR needs the cash flow to change sign after the investment (from negative to positive); if all values are positive or the returns never cover the investment there may be no solution. With several sign changes (a big refurbishment in the middle, say) there can mathematically be several roots; then look at the NPV profile.
- How is the payback period calculated as a fraction of a year?
- In the year in which the cumulative cash flow crosses zero, linear progress within the year is assumed: the shortfall at the end of the previous year divided by that year's cash inflow. For example 2.4 years means payback at 40% of the third year's span after year 2.
Back the decision with data
Let us back your pricing, investment or capacity decision with your real cost and demand data and turn it into sensitivity and scenario analysis.