Break-even analysis is a tool that helps businesses work out how many units they need to sell to cover all their costs. At the break-even point, total revenue equals total costs — the business is making neither a profit nor a loss.
Why businesses use break-even analysis:
To find out the minimum quantity (output) of sales needed before the business starts making a profit.
To help with pricing decisions — businesses can see how changing the price affects the break-even point.
To support business plans and loan applications, by showing banks and investors that the business understands its finances.
To assess the impact of changes in costs — for example, what happens to profitability if rent increases.
The Break-Even Formula
The break-even point can be calculated using a formula, built from three ideas: fixed costs, variable costs, and contribution.
Contribution per unit = Selling price per unit − Variable cost per unit.
Break-even output (units) = Fixed costs ÷ Contribution per unit.
Total contribution = Contribution per unit × number of units sold.
Margin of safety = Actual sales − Break-even output — the amount by which current sales exceed the break-even point, and a measure of how much sales could fall before the business starts making a loss.
Real-World Case Studies
Deliveroo — reaching break-even after a decade of losses
Deliveroo reached break-even across all its regions in the second half of 2022, after a series of cost-reduction measures, before going on to report its first full-year profit — £3 million — in 2024. It had taken the company 12 years since launch to get there. This shows break-even isn't a one-off calculation for a new product, but something a whole business can work towards over years, by growing revenue, controlling costs, or both.
Source: verified via search, September 2026 — RetailDetail EU and UKTN coverage of Deliveroo's path to profitability.
Peloton — moving the break-even point by cutting costs, not just chasing sales
Peloton posted operating income of $41.3 million in the quarter to September 2025 and $52.5 million in the quarter to March 2026 — its first sustained run of operating profit — even though its number of paying subscribers kept falling over the same period. It got there mainly by cutting costs rather than growing sales. This is a useful reminder that a business's break-even output isn't fixed: lowering fixed or variable costs moves the break-even point down, so a business can move towards profit even while selling less than before.
Source: verified via search, September 2026 — Peloton's own investor Q1 FY2026 and Q2 FY2026 results releases.
Quick Quiz
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1. A business sells a product for £20. Variable cost per unit is £8. What is the contribution per unit?
2. Fixed costs are £6,000 and contribution per unit is £15. What is the break-even output?
3. A business's break-even output is 500 units and it currently sells 650 units. What is its margin of safety?
4. At the break-even point, what is true of a business's total revenue and total costs?
5. Which of these would lower a business's break-even output?
Score: 0 / 0
Fill in the Blank
Tap the word or phrase that correctly completes each formula.
1. Contribution per unit = Selling price per unit − ____.
2. Break-even output = Fixed costs ÷ ____.
3. Margin of safety = Actual sales − ____.
4. Total contribution = Contribution per unit × ____.
Score: 0 / 0
Quick Knowledge Check
Short, snappy recall questions — tap to reveal the answer.
What is the break-even formula? (1 mark)
Fixed costs ÷ Contribution per unit.
How is contribution per unit calculated? (1 mark)
Selling price per unit − Variable cost per unit.
What is the margin of safety formula? (1 mark)
Actual sales − Break-even output.
Key Term Flashcards
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Break-even point
The point at which total revenue equals total costs — the business makes neither a profit nor a loss.
Contribution per unit
Selling price per unit minus variable cost per unit — the amount each sale contributes towards covering fixed costs.
Margin of safety
Actual sales minus break-even output — how far sales could fall before the business makes a loss.
Fixed costs
Costs that don't change with output, e.g. rent, salaries, marketing.
Variable costs
Costs that change directly with output, e.g. raw materials, packaging.
A*/A Stretch
Examiner's eye
In break-even calculation questions, always show your working line by line (contribution per unit, then the division), not just a final number — method marks are usually available even if the final answer is wrong due to a small slip.
Synoptic link
Connecting to sources of finance (L2, this unit): A lower break-even output makes a business less risky to lend to, since it needs fewer sales to cover its costs — this is exactly why banks and investors often ask to see break-even analysis as part of a loan application or business plan, linking this topic directly to sources of finance.
Try This With AI
Before using this: AI tools can get facts or mark scheme details wrong, and quality varies by tool. Always check anything factual against your notes or ask your teacher.
Give me three short break-even calculation problems of increasing difficulty, similar in style to an AQA A-Level Business exam, with the numbers hidden until I ask for the answer. After I attempt each one, mark my working and tell me whether I've shown the correct formula and method, not just the correct final number.