The formula
units = fixed costs ÷ (price − variable cost)
What it means
Every unit sold leaves a contribution margin, which is what is left after paying its own variable cost. That margin goes towards covering the fixed costs. Once they are covered, every additional unit is clean profit.
How to work it out by hand
- Subtract the variable cost from the price: that is the contribution per unit
- Divide the fixed costs by that contribution
- Round up: you cannot sell a fraction of a unit
What is worth knowing
If the price does not cover the variable cost, there is no break-even point at all: selling more deepens the loss. That is the signal to raise the price or rework the product, not to chase volume. The contribution ratio also shows how much room you have: below 30 %, any dip in sales hurts fast.