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The ladder / Level 1 · Trader/ Business math

Break-even for traders

How many units, or how many rupees of sales, before you start making money; and what a price cut or GST mistake does to that number.

By Manoj Sahukar October 2026 8 min read

How numbers are rounded on these pages. Calculations are done at full precision and rounded only at the end, half up. Rupee amounts are rounded to the nearest rupee unless shown with paise, in which case to the nearest paisa. Percentages are shown to two decimal places, and days to one decimal place. Break-even quantities and reorder levels are rounded up to the next whole unit, because rounding down would leave you short. Economic order quantity is rounded to the nearest whole unit. Interest for a number of days uses a 365-day year. All examples and quiz questions are Hypothetical: they show the method, not real prices or rates.

Break-even

Every month you have costs that do not change with how much you sell: rent, salaries, electricity, phone, the van's insurance. These are fixed costs. Each unit you sell also has variable costs that come with it: the purchase price, delivery, packing, a salesman's commission.

What a unit leaves behind after its own variable costs is its contribution: it contributes towards paying the fixed costs. Once enough units have paid off all the fixed costs, you have reached break-even: no profit, no loss. Every unit after that is profit.

The standard formulas

Contribution per unit = Selling price per unit − Variable cost per unit
Break-even in unitsBreak-even quantity = Fixed costsSelling price per unit − Variable cost per unit
Break-even in rupees of salesContribution margin ratio = Contribution per unitSelling price per unitBreak-even sales (₹) = Fixed costsContribution margin ratio
Target profitQuantity for a target profit = Fixed costs + Target profitContribution per unit

Terms used

Fixed costs
Costs for a period that stay the same whatever you sell in that period (within normal limits).
Variable cost per unit
Costs that come with each unit sold. Use amounts excluding GST if you claim input tax credit.
Contribution per unit
Selling price minus variable cost per unit.
Contribution margin ratio
Contribution as a share of the selling price. Useful when you sell many products and think in rupees of sales.
Break-even point
The quantity, or rupees of sales, at which total contribution exactly equals fixed costs, so profit is zero.

Worked examples

HypotheticalBasicBreak-even packs for a small tea trader

A trader buys packs of tea at ₹180 and spends ₹4 per pack on delivery. He sells at ₹200. His fixed costs are ₹30,000 a month (godown rent, a helper's salary, phone and electricity).

  • Variable cost per pack = ₹180 + ₹4 = ₹184
  • Contribution per pack = ₹200 − ₹184 = ₹16
  • Break-even quantity = ₹30,000 ÷ ₹16 = 1,875 packs a month

HypotheticalIntermediateQuantity for a target profit

The same trader wants a profit of ₹20,000 a month.

  • Quantity = (₹30,000 + ₹20,000) ÷ ₹16 = 3,125 packs a month

The extra 1,250 packs above break-even each bring ₹16: 1,250 × ₹16 = ₹20,000.

HypotheticalIntermediateBreak-even in rupees for a distributor with many products

An FMCG distributor sells hundreds of items, so counting units is not practical. On average, for every ₹100 of sales, goods cost ₹91 and variable costs (fuel, loading, commission) are ₹3. Fixed costs are ₹1,80,000 a month.

  • Contribution per ₹100 of sales = ₹100 − ₹91 − ₹3 = ₹6, so the contribution margin ratio = 6%
  • Break-even sales = ₹1,80,000 ÷ 0.06 = ₹30,00,000 a month

HypotheticalAdvancedWhat a small price cut does to break-even

A competitor forces the tea trader to cut his price by ₹5, from ₹200 to ₹195. Costs stay the same.

  • New contribution = ₹16 − ₹5 = ₹11 per pack
  • New break-even = ₹30,000 ÷ ₹11 = 2,727.27, rounded up to 2,728 packs
  • That is 853 more packs, about 45.5% more than before.

A price cut of 2.5% needs roughly 45% more volume just to stand still, because the cut comes entirely out of a small contribution.

HypotheticalAdvancedThe GST trap in break-even

A GST-registered trader (regular scheme, claims input tax credit) sells a product at ₹590 including GST at an example rate of 18%. His purchase cost excluding GST is ₹440 and delivery ₹10 per unit. Fixed costs are ₹60,000 a month.

  • Price excluding GST = ₹590 × 100 ÷ 118 = ₹500. The GST collected goes to the government, so it is not contribution.
  • Contribution = ₹500 − ₹440 − ₹10 = ₹50
  • Break-even = ₹60,000 ÷ ₹50 = 1,200 units
  • Mistake: using the inclusive price gives a contribution of ₹140 and a break-even of only 429 units, a dangerous underestimate.

Quiz: break-even for traders

Pick an answer to see at once whether it is right, with a short explanation. Each question takes one try; your score appears at the end. No answers are sent anywhere. (Without JavaScript, open “Show answer” under each question.)

  1. Break-even · BasicWhat does contribution per unit mean?
    Show answer

    Answer: (b) Selling price minus variable cost per unit

    Contribution is what each unit leaves after its own variable costs, available to pay fixed costs and then make profit.

    Why the other options are wrong:

    • (a) That is profit per unit after allocating fixed costs.
    • (c) GST is not contribution; it goes to the government.
    • (d) That is average net profit per unit.
  2. Break-even · BasicFixed costs are ₹24,000 a month. You buy at ₹70 and sell at ₹82, with no other variable costs. What is the break-even quantity?
    Show answer

    Answer: (c) 2,000 units

    Contribution = ₹82 − ₹70 = ₹12. Break-even = ₹24,000 ÷ ₹12 = 2,000 units.

    Why the other options are wrong:

    • (a) That divides by the selling price, not the contribution.
    • (b) That divides by the cost price.
    • (d) A decimal slip: ₹24,000 ÷ ₹12 is 2,000.
  3. Break-even · BasicAt the break-even point, your profit is:
    Show answer

    Answer: (c) Zero

    Break-even means total contribution exactly covers fixed costs: no profit, no loss.

    Why the other options are wrong:

    • (a) At break-even, contribution equals fixed costs, so profit is nil.
    • (b) Contribution is used up paying fixed costs.
    • (d) Margin is a per-sale idea; break-even is about the whole period.
  4. Break-even · IntermediateFixed costs ₹45,000 a month, selling price ₹250, variable cost ₹220 per unit. You want a profit of ₹15,000. How many units must you sell?
    Show answer

    Answer: (d) 2,000 units

    (₹45,000 + ₹15,000) ÷ (₹250 − ₹220) = ₹60,000 ÷ ₹30 = 2,000 units.

    Why the other options are wrong:

    • (a) That is break-even; it leaves out the target profit.
    • (b) That covers only the target profit, not fixed costs.
    • (c) That divides by the selling price.
  5. Break-even · IntermediateFixed costs are ₹90,000 a month and your contribution margin ratio is 5%. What are your break-even sales?
    Show answer

    Answer: (b) ₹18,00,000

    ₹90,000 ÷ 0.05 = ₹18,00,000 of sales a month.

    Why the other options are wrong:

    • (a) That multiplies by the ratio instead of dividing.
    • (c) That uses 50% instead of 5%.
    • (d) That adds 5% to fixed costs.
  6. Break-even · IntermediateContribution is ₹15 per unit. Fixed costs rise from ₹30,000 to ₹36,000 a month. By how many units does break-even rise?
    Show answer

    Answer: (b) 400 units

    Extra fixed costs ₹6,000 ÷ ₹15 = 400 more units (from 2,000 to 2,400).

    Why the other options are wrong:

    • (a) That is the new break-even, not the rise.
    • (c) That is the old break-even.
    • (d) That is the rise in rupees, not units.
  7. Break-even · AdvancedYou sell at ₹100 with a variable cost of ₹90; fixed costs are ₹50,000. You cut the price to ₹96. What is the new break-even quantity?
    Show answer

    Answer: (c) 8,334 units

    New contribution = ₹96 − ₹90 = ₹6. ₹50,000 ÷ ₹6 = 8,333.33, rounded up to 8,334 units, up from 5,000.

    Why the other options are wrong:

    • (a) That assumes break-even rises only by the 4% price cut.
    • (b) That is the old break-even; the price cut changes it.
    • (d) That uses the ₹4 cut as the contribution.
  8. Break-even · AdvancedPrice ₹1,180 including 18% GST (example rate); variable cost ₹900 excluding GST (ITC claimed); fixed costs ₹40,000. What is the break-even quantity?
    Show answer

    Answer: (c) 400 units

    Price excluding GST = ₹1,000. Contribution = ₹1,000 − ₹900 = ₹100. ₹40,000 ÷ ₹100 = 400 units.

    Why the other options are wrong:

    • (a) That uses the GST-inclusive price, so GST is wrongly counted as contribution.
    • (b) That adds GST to cost as well; with ITC, cost excluding GST is right.
    • (d) That divides by the price, not the contribution.
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